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IMPACT OF AGGRESSIVENESS OF WORKING CAPITAL MANAGEMENT ON FIRM'S PROFIT
Corresponding Author(s) : Dr. Khurram Sultan
Humanities & Social Sciences Reviews,
Vol. 7 No. 3 (2019): May
Abstract
Purpose of Study: The study intends to analyze the fact that whether it is better to be aggressive or conservative in formulating strategies for working capital management. The main objective of any firm is to earn the maximum profit but caring for the liquidity is also an important element. Profit of the firm can be increased, the problem comes when profit increases at the cost of liquidity.
Methodology: The data we have collected is from Karachi stock exchange (61 companies) in Pakistan for the time tenure of 6 years (2013-2018).
Results: This study explores the impact of aggressiveness of working capital management on the firm's profit.
Implications/Applications: According to our analysis while considering the Current ratio and Cash conversion cycle as independent variables, there is a significant impact of Current ratio on the firm's profit.
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- Afza, T., & Nazir, M. S. (2008). Working capital approaches and firm’s returns in Pakistan. Pakistan Journal of Commerce and Social Sciences, 1(1), 25-36.
- Appuhami, B. R. (2008). The impact of firms' capital expenditure on working capital management: An empirical study across industries in Thailand. International Management Review, 4(1), 8.
- Chhapra, I. U., & Naqvi, N. A. (2010). Relationship between efficiency level of working capital management and profitability of firms in the textile sector of Pakistan.
- Chowdhury, A., & Amin, M. M. (2007). Working capital management practiced in Pharmaceutical companies in Dhaka stock.
- Das, A., Pisana, S., Chakraborty, B., Piscanec, S., Saha, S., Waghmare, U., . . . Ferrari, A. (2008). Monitoring dopants by Raman scattering in an electrochemically top-gated graphene transistor. Nature nanotechnology, 3(4), 210-215. DOI: https://doi.org/10.1038/nnano.2008.67
- Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance & accounting, 30(3â€4), 573-588. DOI: https://doi.org/10.1111/1468-5957.00008
- Evcimen, G., Kaytaz, M., & Cinar, E. M. (1991). Subcontracting, growth and capital accumulation in smallâ€scale firms in the textile industry in Turkey. The Journal of Development Studies, 28(1), 130-149. DOI: https://doi.org/10.1080/00220389108422226
- Filbeck, G., & Krueger, T. M. (2005). An analysis of working capital management results across industries. American Journal of Business, 20(2), 11-20. DOI: https://doi.org/10.1108/19355181200500007
- Hawawini, G., Viallet, C., & Vora, A. (1986). Industry influence on corporate working capital decisions.
- Lamberson, M. (1995). Changes in working capital of small firms in relation to changes in economic activity. American Journal of Business, 10(2), 45-50. DOI: https://doi.org/10.1108/19355181199500015
- Lazonick, W. (1983). Industrial organization and technological change: the decline of the British cotton industry. Business History Review, 57(02), 195-236. DOI: https://doi.org/10.2307/3114355
- Mehmet, D., & Eda, O. (2009). RELATIONSHIP BETWEEN EFFICIENCY LEVEL OF WORKING CAPITAL MANAGEMENT AND RETURN ON TOTAL ASSETS IN ISE (ISTANBUL STOCK EXCHANGE). International journal of Business and Management, 4(10), p109. DOI: https://doi.org/10.5539/ijbm.v4n10p109
- Muhammad, M., Jan, W. U., & Ullah, K. (2008). Working Capital Management and Profitability An Analysis of Firms of Textile Industry of Pakistan. Journal of Managerial Sciences Volume VI Number, 2, 156.
- Nazir, M. S., & Afza, T. (2009). Working capital requirements and the determining factors in Pakistan. IUP Journal of Applied Finance, 15(4), 28-38.
- Raheman, A., Afza, T., Qayyum, A., & Bodla, M. A. (2010). Working capital management and corporate performance of manufacturing sector in Pakistan. International Research Journal of Finance and Economics, 47(1), 156-169.
- Reason, J. T. (2008). The human contribution: unsafe acts, accidents and heroic recoveries: Ashgate Publishing, Ltd.
- Sharma, A., & Kumar, S. (2011). Effect of working capital management on firm profitability empirical evidence from India. Global Business Review, 12(1), 159-173. DOI: https://doi.org/10.1177/097215091001200110
- Shin, H.-H., & Soenen, L. (1998). Efficiency of working capital management and corporate profitability. Financial practice and education, 8, 37-45.
- Singleton, J. (2013). World Textile Industry: Routledge. DOI: https://doi.org/10.4324/9780203769867
- Uyar, A. (2009). The relationship of cash conversion cycle with firm size and profitability: an empirical investigation in Turkey. International Research Journal of Finance and Economics, 24(2), 186-193.
- Vishnani, S., & Shah, B. K. (2007). Impact of working capital management policies on corporate performance—An empirical study. Global Business Review, 8(2), 267-281. DOI: https://doi.org/10.1177/097215090700800206
- Zhuquan, W., Yongmei, P., & Jianqiang, S. (2007). A Review and Prospect of the Working Capital Management [J]. Accounting research, 2, 012.
References
Afza, T., & Nazir, M. S. (2008). Working capital approaches and firm’s returns in Pakistan. Pakistan Journal of Commerce and Social Sciences, 1(1), 25-36.
Appuhami, B. R. (2008). The impact of firms' capital expenditure on working capital management: An empirical study across industries in Thailand. International Management Review, 4(1), 8.
Chhapra, I. U., & Naqvi, N. A. (2010). Relationship between efficiency level of working capital management and profitability of firms in the textile sector of Pakistan.
Chowdhury, A., & Amin, M. M. (2007). Working capital management practiced in Pharmaceutical companies in Dhaka stock.
Das, A., Pisana, S., Chakraborty, B., Piscanec, S., Saha, S., Waghmare, U., . . . Ferrari, A. (2008). Monitoring dopants by Raman scattering in an electrochemically top-gated graphene transistor. Nature nanotechnology, 3(4), 210-215. DOI: https://doi.org/10.1038/nnano.2008.67
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance & accounting, 30(3â€4), 573-588. DOI: https://doi.org/10.1111/1468-5957.00008
Evcimen, G., Kaytaz, M., & Cinar, E. M. (1991). Subcontracting, growth and capital accumulation in smallâ€scale firms in the textile industry in Turkey. The Journal of Development Studies, 28(1), 130-149. DOI: https://doi.org/10.1080/00220389108422226
Filbeck, G., & Krueger, T. M. (2005). An analysis of working capital management results across industries. American Journal of Business, 20(2), 11-20. DOI: https://doi.org/10.1108/19355181200500007
Hawawini, G., Viallet, C., & Vora, A. (1986). Industry influence on corporate working capital decisions.
Lamberson, M. (1995). Changes in working capital of small firms in relation to changes in economic activity. American Journal of Business, 10(2), 45-50. DOI: https://doi.org/10.1108/19355181199500015
Lazonick, W. (1983). Industrial organization and technological change: the decline of the British cotton industry. Business History Review, 57(02), 195-236. DOI: https://doi.org/10.2307/3114355
Mehmet, D., & Eda, O. (2009). RELATIONSHIP BETWEEN EFFICIENCY LEVEL OF WORKING CAPITAL MANAGEMENT AND RETURN ON TOTAL ASSETS IN ISE (ISTANBUL STOCK EXCHANGE). International journal of Business and Management, 4(10), p109. DOI: https://doi.org/10.5539/ijbm.v4n10p109
Muhammad, M., Jan, W. U., & Ullah, K. (2008). Working Capital Management and Profitability An Analysis of Firms of Textile Industry of Pakistan. Journal of Managerial Sciences Volume VI Number, 2, 156.
Nazir, M. S., & Afza, T. (2009). Working capital requirements and the determining factors in Pakistan. IUP Journal of Applied Finance, 15(4), 28-38.
Raheman, A., Afza, T., Qayyum, A., & Bodla, M. A. (2010). Working capital management and corporate performance of manufacturing sector in Pakistan. International Research Journal of Finance and Economics, 47(1), 156-169.
Reason, J. T. (2008). The human contribution: unsafe acts, accidents and heroic recoveries: Ashgate Publishing, Ltd.
Sharma, A., & Kumar, S. (2011). Effect of working capital management on firm profitability empirical evidence from India. Global Business Review, 12(1), 159-173. DOI: https://doi.org/10.1177/097215091001200110
Shin, H.-H., & Soenen, L. (1998). Efficiency of working capital management and corporate profitability. Financial practice and education, 8, 37-45.
Singleton, J. (2013). World Textile Industry: Routledge. DOI: https://doi.org/10.4324/9780203769867
Uyar, A. (2009). The relationship of cash conversion cycle with firm size and profitability: an empirical investigation in Turkey. International Research Journal of Finance and Economics, 24(2), 186-193.
Vishnani, S., & Shah, B. K. (2007). Impact of working capital management policies on corporate performance—An empirical study. Global Business Review, 8(2), 267-281. DOI: https://doi.org/10.1177/097215090700800206
Zhuquan, W., Yongmei, P., & Jianqiang, S. (2007). A Review and Prospect of the Working Capital Management [J]. Accounting research, 2, 012.