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

Author

Listed:
  • Bhutto, Sarfaraz

    (Department of Commerce SALU, Khairpur, Pakistan)

  • Rajper, Zulfiqar

    (Department of Commerce SALU, Shikarpur campus, Pakistan)

  • Mangi, Riaz Ahmed

    (Department of Commerce SALU, Shikarpur campus, Pakistan)

  • Ghumro, Ikhtiar Ali

    (Department of Commerce SALU, Shikarpur campus, Pakistan)

Abstract

This study aims to investigate the impact of working capital management on the financial performance of firms. We have taken non-financial sector which is listed in Pakistan stock exchange (PSX) over the period of 2010 to 2015. We have sampled 50 firms listed is PSX. The secondary data is being collected from the publication of State bank of Pakistan (SBP) “Financial Statement analyses of Non-financial sector listed in Pakistan stock exchange 2010-2015”. Furthermore, we have used purposive sampling method to choose the selective firms in manufacturing industry of Pakistan. Moreover, Pearson correlation and multiple regression are used as data analyses techniques. The study variables consist working capital management as independent variable and financial performance as dependent variable. We have used proxies to compute independent variable like Average payment period (APP), inventory turnover (ITO), cash conversion cycle (CCC) and average collection period (ACP). Moreover, financial performance (dependent variable) measured as earnings per share (EPS), return on equity (ROE) and return on assets (ROA). It is observed in the results that there is a significant and negative impact of APP and ITO on ROA,but two independent variables CCC and ACP have significantand positive impact on ROA. Moreover, it is found that CCC, APP and ITO have significant and negative impact on ROE and EPS respectively. Last, it is observed that ACP has a significant and positive impact on ROE and EPS. The results of multiple regression investigated that the financial performance of Pakistani manufacturing firms is consistent with WCM. This study supports in managing the working capital requirements to boost firm performance in general. Moreover, specifically in the context of Pakistanimanufacturing firms the study implications are significant in expansion and betterment of financial performance of firms

Suggested Citation

  • Bhutto, Sarfaraz & Rajper, Zulfiqar & Mangi, Riaz Ahmed & Ghumro, Ikhtiar Ali, 2018. "Impact of Working Capital Management on Financial Performance of Firms: Evidence from Pakistani Firms," Sukkur IBA Journal of Management and Business, Sukkur IBA University, vol. 5(2), pages 24-44, July-Dece.
    • Handle: RePEc:ris:ibajmb:0048
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    Cited by:

    1. Qaiser Abbas & Riaz Ahmed & Muhammed Asif & Abid Mehmood, 2022. "The Impact of Investment Decisions on Firm Profitability of Non-Financial Sectors in Pakistan: Mediating Role of Sales Growth," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(4), pages 527-543, December.

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