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Herding Trend in Working Capital Management Practices: Evidence from the Non-Financial Sector of Pakistan

Author

Listed:
  • Umar Farooq

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China)

  • Mosab I. Tabash

    (College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates)

  • Ahmad A. Al-Naimi

    (Department of Finance and Banking Sciences, Faculty of Business, Applied Science Private University, Amman 11931, Jordan)

  • Linda Nalini Daniel

    (Faculty of Business, Higher Colleges of Technology, Abu Dhabi P.O. Box 41012, United Arab Emirates)

  • Mohammad Ahmad Al-Omari

    (College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates)

Abstract

Working capital management requires careful attention from corporate managers because it plays an important role in corporate stability. The social belongingness of managers induced them to learn from their society, colleagues, and overall industrial movement. They also learn from their peers that have more strategic efficiency. In line with these arguments, the objective of the current study is to explore the peer influence on corporate working capital management practices. For regression analysis, we utilized ten years of data (2009–2018) of non-financial publicly listed firms at PSX (Pakistan Stock Exchange). We used the cash conversion cycle (CCC) as a proxy variable to measure working capital management (WCM). We employed panel fixed effect and system GMM (generalized method of moments) models to estimate regression between the variables of the study. The empirical findings suggest the significant impact of peer WCM on corporate WCM. They also suggest the significant impact of other variables that determine the WCM. This study recommends social learning policy for corporate managers. They can learn from their peers to manage the working capital. Most previous studies discuss peer influence on investment decisions, corporate cash holding, financing policy, etc., but no study explores such a relationship specifically in the case of Pakistan.

Suggested Citation

  • Umar Farooq & Mosab I. Tabash & Ahmad A. Al-Naimi & Linda Nalini Daniel & Mohammad Ahmad Al-Omari, 2023. "Herding Trend in Working Capital Management Practices: Evidence from the Non-Financial Sector of Pakistan," JRFM, MDPI, vol. 16(2), pages 1-14, February.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:2:p:127-:d:1070218
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    References listed on IDEAS

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