Impact of working capital management on firm profitability and liquidity: the moderating role of family ownership

Abstract

Purpose

This study aims to analyze whether family ownership and working capital management (WCM) affect firm profitability and liquidity. Further, we also investigate the moderating effect of family ownership on the association between WCM, firm profitability and liquidity.

Design/methodology/approach

This study uses a sample of 150 nonfinancial companies listed on the Pakistan Stock Exchange for the period 2014–2019. For empirical analysis, this study used multiple proxies of family ownership and applied robust and bootstrapped quantile regression models.

Findings

The results suggest that family ownership has a negative association with firm profitability and liquidity. Moreover, this study finds a positive association between WCM and firm profitability and liquidity. Furthermore, the results indicate that family ownership negatively moderates the association between WCM and firm profitability. In addition, we argue that family ownership rescinds the impact of WCM as excess liquidity may be used for extracting private benefits and related party transactions.

Originality/value

First, this study has examined the nexus between family ownership, WCM, firm profitability and liquidity in the context of a developing country, i.e. Pakistan. Second, previous studies have not analyzed the moderating role of family ownership in the association between working capital management, firm profitability and liquidity. Third, this study provides unique evidence that family-owned firms have an adverse liquidity position as compared with other firms.

Citation

, A., Hashmi, M.A. and Iqbal, M.S. (2022), "Impact of working capital management on firm profitability and liquidity: the moderating role of family ownership", Accounting Research Journal, Vol. 35 No. 5, pp. 676-697. https://doi.org/10.1108/ARJ-07-2021-0212