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Working capital and firm value in an emerging market

Author

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  • Shaista Wasiuzzaman

Abstract

Purpose - – The purpose of this paper is to examine the relationship between working capital efficiency and firm value and the influence of financing constraints on this relationship. Design/methodology/approach - – Data from 192 firms spanning a period of ten years (1999-2008) are used for this purpose and analyzed using the ordinary least squares regression technique. Findings - – The study finds that improvements in working capital efficiency through reduction in working capital investment results in higher firm value. However, this relationship is influenced by the financing constraints faced by a firm. For financially constrained firms, working capital efficiency significantly increases firm value but it is found to be insignificant for unconstrained firms. Originality/value - – To the author’s knowledge, this is the first study on the value of working capital in Malaysia or in any emerging market. Most studies on working capital valuation concentrate on developed countries and that too are only a handful. Hence this study contributes to the scarce literature on the valuation of working capital. This study also uses the model by Fama and French (1998) to evaluate the relationship between working capital and firm value, which has hardly been used in studies on working capital valuation.

Suggested Citation

  • 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.
    • Handle: RePEc:eme:ijmfpp:v:11:y:2015:i:1:p:60-79
    DOI: 10.1108/IJMF-01-2013-0016
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    Citations

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    Cited by:

    1. Frimpong, Siaw, 2018. "Working capital policies and value creation of listed non-financial firms in Ghana: a panel FMOLS analysis," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 725-742, August.
    2. 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.
    3. Zheng, Xiaotian & Zhou, Youcheng & Iqbal, Sajid, 2022. "Working capital management of SMEs in COVID-19: role of managerial personality traits and overconfidence behavior," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 439-451.
    4. Amr Ahmed Moussa, 2018. "The impact of working capital management on firms’ performance and value: evidence from Egypt," Journal of Asset Management, Palgrave Macmillan, vol. 19(4), pages 259-273, July.
    5. Shaista Wasiuzzaman, 2015. "Working Capital and Profitability in Manufacturing Firms in Malaysia: An Empirical Study," Global Business Review, International Management Institute, vol. 16(4), pages 545-556, August.
    6. Faisal Mahmood & Dongping Han & Nazakat Ali & Riaqa Mubeen & Umeair Shahzad, 2019. "Moderating Effects of Firm Size and Leverage on the Working Capital Finance–Profitability Relationship: Evidence from China," Sustainability, MDPI, vol. 11(7), pages 1-14, April.
    7. Turki Alshammari, 2020. "Are Trade Policies Performance Enhancing? The Special Case of the GCC Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 42-55, October.
    8. Muhammad Azeem Naz & Rizwan Ali & Ramiz Ur Rehman & Collins G. Ntim, 2022. "Corporate governance, working capital management, and firm performance: Some new insights from agency theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1448-1461, July.

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