Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.11, No.6, 2020 67 Sensitivity of Cash Positions to Leverage and Firm Size of Selected Listed Manufacturing Firms in Nigeria Nnado Celestine Ifeanyi 1* Onyeka Virginia Nnenna 1 Ugwu Collins Chukwuma 2 1.Department of Accountancy, Enugu State University of Science and Technology, Enugu, Nigeria 2.Department of Accountancy, Federal University, Wukari, Nigeria Abstract The study examined the empirical relationship between firm size, financial leverage and level of cash and cash equivalents of selected quoted manufacturing firms in the Nigerian Stock Exchange. Ex-post-facto research approach via panel least squares was employed to assess the nature and extent of association between these variables. Data were collated from the audited annual reports of thirty-seven (37) manufacturing firms for the thirteen year period: 2006-2018. Diagnostic tests were carried out on the collated data using Levin-Lin-Chu panel unit-root test which confirmed their stationarity and Westerlund Panel Cointegration Tests that depicted the variables were not cointegrated in the long run. Hypothetical statements tested using panel least squares revealed that while financial leverage (Lev) exerted insignificant negative influence on the firm’s level of cash and cash equivalents, natural logarithm of total assets exerted insignificant but positive influence on cash holdings. These imply that firms keeping insufficient liquid assets may be forced to borrow from external sources at exorbitant costs or become illiquid. The effects of the control variables are, however, statistically relevant. Keywords: financial leverage, cash holding, firm size DOI: 10.7176/RJFA/11-6-08 Publication date:March 31 st 2020 1. Introduction 1.1 Background of the Study Trade and other payables including debenture holders rely chiefly on the credit worthiness of manufacturing firms that depend on them being liquid enough to honor debt covenants and other maturing liabilities as they fall due. This is facilitated with effective and efficient management of the firms’ cash and liquid substitutes. An optimal capital structure includes not only a sound balancing of debt and equity but an optimal cash balance as capital and other relevant costs are ever increasing (Pettit, 2007). Further, the persistent liquidity squeeze globally that emanated from the global financial crises (GFC) made finance managers to increase their precautionary stash of cash and other liquid resources. As a result of the GFC and credit crunch, liquidity constraints influenced the cash holding policies and practices of firms such that these firms either stockpile excessive cash and near liquid resources, minimize cash outflows and / or contract exorbitant debt covenants (Chen, 2016; Borici and Kruja, 2016). Recent studies suggest that cash holdings of firms are influenced by investment opportunities, cash flow variability, dividend payments, net working capital, leverage ratio, return on assets, return on equity, profit for the year, liquidity, free float, firm size, short term debt, investment in capital expenditures, tax expenses, age of firm, cash conversion cycle, corporate governance, internationalization of firm and industry (Hofmann, 2006 in Sulaman, Amna, Naila, Adnan & Mohsin, 2016; Harford, Mansi and Maxwell, 2008; Isshaq and Bokpin, 2009; Anjum and Malik, 2013; Hemmati, Rezaei and Anaraki, 2013; Magerakis, 2015; Kariuki, Namusonge and Orwa, 2015; Le, Tran, Ta and Vu, 2018 ). An optimal cash position ensures that managers pursue viable projects (positive net present value projects) relieved of being forced to issue junk debts and / or undervalued securities (Wasiuzaman and Arumugam, 2013). For instance, profitability has to be balanced / synced with the firm’s liquidity position (Aminu, 2012) in line with trade-off theory. This position involves having enough liquid and near-liquid resources to offset maturing debt obligations and current liabilities. Most recent studies incorporating quantitative panel methodology focused on firm specific factors rather than macroeconomic / external factors exerting significant influence on cash positions of firms. These studies exhibited divergent views. That is, it is unclear as to which specific factors affect cash holdings of firms. Nonetheless, determining an optimal cash position for the firm entails management of the aforementioned factors adequately and at minimal cost. Use of cash flow analysis, cash budgets and financial / liquidity ratios ensures necessary adjustments are made by the firm in this post GFC era to avoid illiquidity (Mizen, 2008; Abushammala and Sulaiman, 2014). The manufacturing sector (industry) evolved in a bid by the federal government to structurally transform and revamp the economy through industrialization The manufacturing sector is weak and heavily import dependent as it consumes, at least, 63% of our hard earned foreign exchange (Omotola, 2016). The manufacturing sector has failed the economy as it is bedeviled by little or no foreign investment / capital flight, high production cost, low capacity utilization, low economic value added, borrowed technological base that is capital intensive and so on (Simon-Oke and Aribisala, 2010; Ozigbo, 2018).