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

Author

Listed:
  • Tanveer Bagh

    (Department of Business Administration University of Azad Jammu and Kashmir Muzaffarabad, Pakistan,)

  • Muhammad Imran Nazir

    (Department of Economics and Finance Mohammad Ali Jinnah University, Islamabad, Pakistan,)

  • Muhammad Asif Khan

    (Department of Commerce, University of Kotli, Azad Jammu and Kashmir, Pakistan,)

  • Muhammad Atif Khan

    (Department of Commerce, University of Kotli, Azad Jammu and Kashmir, Pakistan)

  • Sadaf Razzaq

    (Department of Human Resource Management, University of Management Sciences and Information Technology Kotli, Pakistan.)

Abstract

The purpose of this study was to empirically explore the impact of working capital management (WCM) on firms performance of chosen manufacturing firms listed in Karachi stock exchange (KSE). The quantitative research methods, correlation matrix and multiple regressions, secondary data and purposive sampling have been worked out. Arandom sample of 50 listed non-financial companies on Pakistani Stock Market was selected for the period ranging from year 2005 to 2014. The WCM has been used as an independent variable, i.e., inventory turnover (ITO), cash conversion cycle (CCC), average collection period (ACP), and average payment period (APP). The firm performance (FP) has been used as dependent variable, i.e., return on asset (ROA), return on equity (ROE) and earning per share (EPS). The results of multiple regression articulated that the APP, ITO and CCC have negative and significant impact on ROA but ACP has positive and significant impact on ROA. While APP has negative significant impact on ROE. The ITO has negative significant impact on EPS while ACP has positive and statistically significant impact on. The study results advocated that the FP of selected firms is influenced by WCM. By validating the findings with previous researchers, this endeavor will contribute to the literature. It will be beneficial to the academic, social and practical deportment. The study findings endowed with deeper insights into WCM practices and present recommendations that in turn bring improvements in the FP of the targeted firms.

Suggested Citation

  • Tanveer Bagh & Muhammad Imran Nazir & Muhammad Asif Khan & Muhammad Atif Khan & Sadaf Razzaq, 2016. "The Impact of Working Capital Management on Firms Financial Performance: Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1097-1105.
    • Handle: RePEc:eco:journ1:2016-03-36
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    References listed on IDEAS

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    1. Gamze VURAL & Ahmet G khan S KMEN & Emin H seyin CETENAK, 2012. "Affects of Working Capital Management on Firm's Performance: Evidence from Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 488-495.
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    5. Sebastian Ofumbia Uremadu & Ben-Caleb Egbide & Patrick E. Enyi, 2012. "Working Capital Management, Liquidity and Corporate Profitability Among Quoted Firms in Nigeria Evidence from the Productive Sector," 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. 2(1), pages 80-97, January.
    6. Shahid Ali, 2011. "Working Capital Management and the Profitability of the Manufacturing Sector: A Case Study of Pakistan’s Textile Industry," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 141-178, Jul-Dec.
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    Cited by:

    1. Umar Abbas Ibrahim & Abdulqadir Isiaka, 2021. "Working capital management and financial performance of non financial quoted companies in Nigeria," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 241-258, April.
    2. 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.
    3. Garikai Mandipa & Athenia Bongani Sibindi, 2022. "Financial Performance and Working Capital Management Practices in the Retail Sector: Empirical Evidence from South Africa," Risks, MDPI, vol. 10(3), pages 1-17, March.

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    More about this item

    Keywords

    Working Capital; Working Capital Management; Financial Performance; Pakistan;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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