IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2016-03-36.html
   My bibliography  Save this article

The Impact of Working Capital Management on Firms Financial Performance: Evidence from Pakistan

Author

Listed:
  • Tanveer Bagh

    (Department of Business Administration University of Azad Jammu and Kashmir Muzaffarabad, Pakistan,)

  • Muhammad Imran Nazir

    (Department of Economics and Finance Mohammad Ali Jinnah University, Islamabad, Pakistan,)

  • Muhammad Asif Khan

    (Department of Commerce, University of Kotli, Azad Jammu and Kashmir, Pakistan,)

  • Muhammad Atif Khan

    (Department of Commerce, University of Kotli, Azad Jammu and Kashmir, Pakistan)

  • Sadaf Razzaq

    (Department of Human Resource Management, University of Management Sciences and Information Technology Kotli, Pakistan.)

Abstract

The purpose of this study was to empirically explore the impact of working capital management (WCM) on firms performance of chosen manufacturing firms listed in Karachi stock exchange (KSE). The quantitative research methods, correlation matrix and multiple regressions, secondary data and purposive sampling have been worked out. Arandom sample of 50 listed non-financial companies on Pakistani Stock Market was selected for the period ranging from year 2005 to 2014. The WCM has been used as an independent variable, i.e., inventory turnover (ITO), cash conversion cycle (CCC), average collection period (ACP), and average payment period (APP). The firm performance (FP) has been used as dependent variable, i.e., return on asset (ROA), return on equity (ROE) and earning per share (EPS). The results of multiple regression articulated that the APP, ITO and CCC have negative and significant impact on ROA but ACP has positive and significant impact on ROA. While APP has negative significant impact on ROE. The ITO has negative significant impact on EPS while ACP has positive and statistically significant impact on. The study results advocated that the FP of selected firms is influenced by WCM. By validating the findings with previous researchers, this endeavor will contribute to the literature. It will be beneficial to the academic, social and practical deportment. The study findings endowed with deeper insights into WCM practices and present recommendations that in turn bring improvements in the FP of the targeted firms.

Suggested Citation

  • Tanveer Bagh & Muhammad Imran Nazir & Muhammad Asif Khan & Muhammad Atif Khan & Sadaf Razzaq, 2016. "The Impact of Working Capital Management on Firms Financial Performance: Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1097-1105.
    • Handle: RePEc:eco:journ1:2016-03-36
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/2234/pdf
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijefi/article/view/2234/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gamze VURAL & Ahmet G khan S KMEN & Emin H seyin CETENAK, 2012. "Affects of Working Capital Management on Firm's Performance: Evidence from Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 488-495.
    2. Preve, Lorenzo & Sarria-Allende, Virginia, 2010. "Working Capital Management," OUP Catalogue, Oxford University Press, number 9780199737413.
    3. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    4. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
    5. Sebastian Ofumbia Uremadu & Ben-Caleb Egbide & Patrick E. Enyi, 2012. "Working Capital Management, Liquidity and Corporate Profitability Among Quoted Firms in Nigeria Evidence from the Productive Sector," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(1), pages 80-97, January.
    6. Shahid Ali, 2011. "Working Capital Management and the Profitability of the Manufacturing Sector: A Case Study of Pakistan’s Textile Industry," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 141-178, Jul-Dec.
    7. A.K. Sharma & Satish Kumar, 2011. "Effect of Working Capital Management on Firm Profitability," Global Business Review, International Management Institute, vol. 12(1), pages 159-173, February.
    8. Haitham Nobanee & Modar Abdullatif & Maryam AlHajjar, 2011. "Cash conversion cycle and firm's performance of Japanese firms," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 19(2), pages 147-156, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Umar Abbas Ibrahim & Abdulqadir Isiaka, 2021. "Working capital management and financial performance of non financial quoted companies in Nigeria," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 241-258, April.
    2. Randa Mohammed Shams Addin Al-Mawsheki & Norzalina Binti Ahmad & Norhafiza Binti Nordin, 2019. "The Effects of Efficient Working Capital Management and Working Capital Policies on Firm Performance: Evidence from Malaysian Manufacturing Firms," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 59-69, July.
    3. Garikai Mandipa & Athenia Bongani Sibindi, 2022. "Financial Performance and Working Capital Management Practices in the Retail Sector: Empirical Evidence from South Africa," Risks, MDPI, vol. 10(3), pages 1-17, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bilgehan TEKİN & Yusuf GÖR, 2022. "Cash conversion cycle and its relationship with profitability as a cash management tool in companies: An application on companies trading in Borsa Istanbul," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 113-130, Autumn.
    2. Dalci, Ilhan & Ozyapici, Hasan, 2018. "Working capital management policy in health care: The effect of leverage," Health Policy, Elsevier, vol. 122(11), pages 1266-1272.
    3. Randa Mohammed Shams Addin Al-Mawsheki & Norzalina Binti Ahmad & Norhafiza Binti Nordin, 2019. "The Effects of Efficient Working Capital Management and Working Capital Policies on Firm Performance: Evidence from Malaysian Manufacturing Firms," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 59-69, July.
    4. Amr Ahmed Moussa, 2018. "The impact of working capital management on firms’ performance and value: evidence from Egypt," Journal of Asset Management, Palgrave Macmillan, vol. 19(4), pages 259-273, July.
    5. Sumathi Kumaraswamy, 2016. "Impact of Working Capital on Financial Performance of Gulf Cooperation Council Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1136-1142.
    6. Odunayo Magret Olarewaju & Mishelle Doorasamy & Titilayo Moromoke Oladejo, 2017. "Nexus of Working Capital Management and Firm Performance in Nigerian Food and Beverages Industries: A Link with Risk-Return Theory," Journal of Economics and Behavioral Studies, AMH International, vol. 9(1), pages 90-98.
    7. Shah, Mumtaz Hussain & Khan, Fiaz, 2018. "Profitability and Working Capital Management Nexus: Evidence from Food & Personal Care Products Sector Firms Listed on Pakistan Stock Exchange," MPRA Paper 107254, University Library of Munich, Germany.
    8. Zheng, Xiaotian & Zhou, Youcheng & Iqbal, Sajid, 2022. "Working capital management of SMEs in COVID-19: role of managerial personality traits and overconfidence behavior," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 439-451.
    9. Padachi Kesseven D & Carole Howorth, 2014. "Focus on working capital management practices among Mauritian SMEs: Survey evidence and empirical analysis," E3 Journal of Business Management and Economics., E3 Journals, vol. 5(4), pages 097-108.
    10. Afrifa, Godfred Adjapong & Tingbani, Ishmael & Adesina, Oluseyi Oluseun, 2022. "Stochastic frontier modelling of working capital efficiency across Europe," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    11. Tarek Ibrahim Eldomiaty & Mohamed Hashem Rashwan & Mohamed Bahaa El Din & Waleed Tayel, 2016. "Firm, industry and economic determinants of working capital at risk," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-29, December.
    12. Hari P. Adhikari & Marcin W. Krolikowski & James Malm & Nilesh B. Sah, 2021. "Working capital (mis)management – impact of executive age," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 727-761, March.
    13. Najib H. S Farhan & Faozi A. Almaqtari & Ebrahim Mohammed Al-Matari & Nabil Ahmed M. SENAN & Waleed M. Alahdal & Saddam A. Hazaea, 2021. "Working Capital Management Policies in Indian Listed Firms: A State-Wise Analysis," Sustainability, MDPI, vol. 13(8), pages 1-25, April.
    14. Mohammad Tahir & Melati Anuar, 2016. "The determinants of working capital management and firms performance of textile sector in pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 605-618, March.
    15. Doğan, Mesut & Kevser, Mustafa, 2020. "The Determinants of Cash Conversion Cycle and Firm Performance: An Empirical Research for Borsa Istanbul Turkey," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 5(2), pages 197-206.
    16. Claudinê Jordão de Carvalho, 2015. "Conditioning Factors of Late Payment of Trade Credit," Brazilian Business Review, Fucape Business School, vol. 0(2), pages 72-91, August.
    17. Genesis Gyasi Sah, 2022. "Influence of Account Receivable Management Practices on the Performance of Small and Medium Scale Enterprises," Technium Social Sciences Journal, Technium Science, vol. 32(1), pages 376-388, June.
    18. Brandenburg, Marcus, 2016. "Supply chain efficiency, value creation and the economic crisis – An empirical assessment of the European automotive industry 2002–2010," International Journal of Production Economics, Elsevier, vol. 171(P3), pages 321-335.
    19. Malcolm Athaide & H. K. Pradhan, 0. "A model of credit constraint for MSMEs in India," Small Business Economics, Springer, vol. 0, pages 1-19.
    20. Roma Rys-Jurek, 2021. "Working Capital Management vs Profitability in Agricultural Holdings (in the Context of Integration for “Old” and “New” EU Members)," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 173-187.

    More about this item

    Keywords

    Working Capital; Working Capital Management; Financial Performance; Pakistan;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2016-03-36. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.