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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
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    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.
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    Cited by:

    1. 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.
    2. 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.
    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.

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    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

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