Working Capital Management and Firm Value in Bangladesh: Do Cash Conversion Cycle Components Matter Differently?

This paper studies the impact of working capital management efficiency on the value of manufacturing companies in Bangladesh. It endeavors to specify whether efficient working capital management has a significant positive effect on company value, and whether the effect is greater between some components of working capital management and company value measures than in other cases. Tobin’s Q ratio has been used as the proxy for firm value. The key predictor variable is cash conversion cycle (CCC), along with its separate components- days inventory in hand (DIH), days sales outstanding (DSO), and days payable outstanding (DPO). Firm-level data has been collected from the annual reports of 20 manufacturing firms listed in the Dhaka Stock Exchange (DSE) across different sectors, spanning from 2018 to 2022. The results reveal that working capital management efficiency, measured by CCC, has a statistically significant impact on the market value among manufacturing firms in Bangladesh. The aggregate effect of shorter CCC appears to be driven primarily by DIH, as it is the only CCC component to have a significant impact on firm value. The lagged analysis further confirms the negative relationship between inventory days and firm value. According to the findings, firms should prioritize inventory management as a key driver of value creation. The results also highlight the importance of improving supply chain efficiency and operational infrastructure in emerging markets like Bangladesh. Prior studies have often put the cash conversion cycle alongside its individual components within the same empirical framework. This paper distinguishes between the comprehensive measure of working capital efficiency and its individual factors to assess their differential impact on company value.