IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2017-03-86.html
   My bibliography  Save this article

The Impact of Working Capital Management on Firm's Profitability: Evidence from Malaysian Listed Manufacturing Firms

Author

Listed:
  • Sin Huei Ng

    (INTI International University, Malaysia)

  • Chen Ye

    (INTI International University, Malaysia)

  • Tze San Ong

    (Universiti Putra Malaysia, Malaysia,)

  • Boon Heng Teh

    (Multimedia University, Malaysia.)

Abstract

This study investigates the relationship between working capital management and firm's profitability of Malaysian listed manufacturing firms. It aims to examine the impact of working capital management from the aspects of aggressive working capital policy and efficiency of working capital management. Data is obtained from the annual reports of 122 firms listed in the industrial products sector of Bursa Malaysia Main board for the 6 year period from 2007 to 2012 to determine the relationships between the variables of working capital management and firm's gross operating income (GOI). The results indicate that GOI is negatively related to the degree of aggressiveness of investment policies but positively related with the degree of aggressiveness of financing policies. Moreover, as a comprehensive measure of the efficiency of working capital management, the study finds cash conversion cycle is positively related to GOI. It shows that an increase in inventory conversion period is positively related to firms' profitability. Likewise, firms can increase profitability by reducing the period of collecting account receivables.

Suggested Citation

  • Sin Huei Ng & Chen Ye & Tze San Ong & Boon Heng Teh, 2017. "The Impact of Working Capital Management on Firm's Profitability: Evidence from Malaysian Listed Manufacturing Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 662-670.
    • Handle: RePEc:eco:journ1:2017-03-86
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/3889/pdf
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijefi/article/view/3889/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rafiu Oyesola Salawu, 2007. "Capital Industry Practice And Aggressive Conservative Working Capital Policies In Nigeria," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 1(2), pages 109-117.
    2. Shaista Wasiuzzaman, 2015. "Working capital and firm value in an emerging market," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 60-79, February.
    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. Bana Abuzayed, 2012. "Working capital management and firms’ performance in emerging markets: the case of Jordan," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(2), pages 155-179, March.
    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. Tarik Hossain, 2020. "The effect of working capital management on profitability: A study on manufacturing companies in Bangladesh," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(6), pages 114-122, October.
    2. Muhammad Matin Khan & Md. Ismail Hossain Shagor & Abu Kalam & Md. Sojib Ahmed, 2020. "Working Capital Management and Firm Profitability in the Textile Industry of Bangladesh," International Journal of Science and Business, IJSAB International, vol. 4(7), pages 118-127.
    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.

    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. Turki Alshammari, 2020. "Are Trade Policies Performance Enhancing? The Special Case of the GCC Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 42-55, October.
    2. 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.
    3. Muhammad Azeem Naz & Rizwan Ali & Ramiz Ur Rehman & Collins G. Ntim, 2022. "Corporate governance, working capital management, and firm performance: Some new insights from agency theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1448-1461, July.
    4. 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.
    5. Małgotrzata B. Okręglicka, 2014. "The Economic Recession And Working Capital Management Of Companies In Poland," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 8(1), pages 696-706.
    6. 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.
    7. 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.
    8. Kusuma Hadri & Bachtiar Ahmad Dhiyaullatief, 2018. "Working Capital Management and Corporate Performance: Evidence from Indonesia," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 26(2), pages 76-88, June.
    9. Jacek Jaworski & Leszek Czerwonka, 2022. "Which Determinants Matter for Working Capital Management in Energy Industry? The Case of European Union Economy," Energies, MDPI, vol. 15(9), pages 1-18, April.
    10. Nastiti Pambayun Kinasih Yekti & Atahau Apriani Dorkas Rambu & Supramono Supramono, 2019. "Working Capital Management Policy: Female Top Managers and Firm Profitability," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 27(3), pages 107-127, September.
    11. 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.
    12. SUNTRARUK Phassawan, 2023. "The Mediating Effect Of Profitability On The Relationship Between Working Capital Management And Sustainable Growth," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 18(1), pages 314-327, April.
    13. Nitya Nand Tripathi & Naseem Ahamed, 2017. "Time Taken to Reach the Performance Summit: Nature of Relation Between Working Capital Management and Firm Performance in the Indian Context," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 530-536.
    14. Shikha Bhatia & Aman Srivastava, 2016. "Working Capital Management and Firm Performance in Emerging Economies: Evidence from India," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 41(2), pages 71-87, May.
    15. Abudu Braimah & Yinping Mu & Isaac Quaye & Alhassan Abubakar Ibrahim, 2021. "Working Capital Management and SMEs Profitability in Emerging Economies: The Ghanaian Case," SAGE Open, , vol. 11(1), pages 21582440219, February.
    16. 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.
    17. Frimpong, Siaw, 2018. "Working capital policies and value creation of listed non-financial firms in Ghana: a panel FMOLS analysis," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 725-742, August.
    18. Josiah Aduda & Morgan Ongoro, 2020. "Working Capital and Earnings Management among Manufacturing Firms: A Review of Literature," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 9(3), pages 1-5.
    19. Shaista Wasiuzzaman, 2015. "Working Capital and Profitability in Manufacturing Firms in Malaysia: An Empirical Study," Global Business Review, International Management Institute, vol. 16(4), pages 545-556, August.
    20. Luca Sensini & Maria Vazquez, 2023. "Effects of Working Capital Management on SME Profitability: Evidence from an Emerging Economy," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(4), pages 1-85, February.

    More about this item

    Keywords

    Working Capital Management; Profitability; Manufacturing Firms; Malaysia;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

    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:journ1:2017-03-86. 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.