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The Effect Of Working Capital Practices On Risk Management: Evidence From Jordan

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  • Faris Nasif ALShubiri

Abstract

Working capital does not receive a great deal of attention in financial decision making. Perhaps this is because it involves investment and financing for the short term. Nevertheless, it is an important component of firm financial management. This study investigates the relationship between aggressive/conservative working capital practices and profitability as well as risk. The sample includes 59 industrial firms and 14 banks listed on the Amman Stock Exchange for the period of 2004-2008. The results indicate a negative relationship between profitability measures and working capital aggressiveness, investment and financing policy. Firms have negative returns if they follow an aggressive working capital policy. In general, there is no statistically significant relationship between the level of current assets and current liabilities on operating and financial risk in industrial firms. There is some statistically significant evidence to indicate a relationship between standard deviation of return on investments and working capital practices in banks.

Suggested Citation

  • Faris Nasif ALShubiri, 2011. "The Effect Of Working Capital Practices On Risk Management: Evidence From Jordan," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(1), pages 39-54.
    • Handle: RePEc:ibf:gjbres:v:5:y:2011:i:1:p:39-54
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    References listed on IDEAS

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    1. 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.
    2. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Samina Riaz & Athar Iqbal & M Irfan Khan, 2019. "The Impact Of Ccc And Wc On The Profi Tability Of Kmi-30 Index," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 15(1), pages 15-17.
    3. 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.
    4. 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.
    5. Riaz, Samina & Iqbal, Athar & Khan, Muhammad Irfan, 2019. "The Impact of CCC and WC on The Profitability of KMI-30 INDEX," MPRA Paper 103036, University Library of Munich, Germany, revised 30 Dec 2019.
    6. Ahmed Mohamed Habib & Nahia Mourad, 2022. "Analyzing the Efficiency of Working Capital Management: a New Approach Based on DEA-Malmquist Technology," SN Operations Research Forum, Springer, vol. 3(3), pages 1-20, September.
    7. Samina Riaz & Athar Iqbal & M Irfan Khan, 2019. "The Impact Of Ccc And Wc On The Profi Tability Of Kmi-30 Index," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 15(1), pages 84-94.
    8. Ukaegbu, Ben, 2014. "The significance of working capital management in determining firm profitability: Evidence from developing economies in Africa," Research in International Business and Finance, Elsevier, vol. 31(C), pages 1-16.

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    More about this item

    Keywords

    Banks; Degree of aggressiveness/conservativeness; Working Capital Practices; Profitability; Market Rate of Return; Tobin’s q; Operating risk and Financial risk.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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