The Impacts of Working Capital Policy on Firms’ Performances: An Empirical Study on Thai Listed Companies in Production Sector

Abstract

This research investigates (1) the impacts of working capital investment policy and working capital financing policy on firms’ performances (profitability and market value) and (2) the impact of profitability on market value. Data are gathered from 68 companies listed in the Stock Exchange of Thailand covering production sector. Data collected from 2012 to 2016 are analyzed using path analysis to measure the impacts of working capital policy on performances and examine the consistency of the model and the empirical data.

The model is found to be consistent with the empirical data; the probability level is 0.085, χ ²/df is 2.96, CFI is 0.951, GFI is 0.979, IFI is 0.957, and RMR is 0.004. The result reveals a statistically significant positive relationship between working capital investment policy and profitability. In addition, working capital investment policy affects market value through profitability as a mediator variable. However, there are significant negative impacts of working capital financing policy on profitability and market value. Overall, it can be implied that companies which adopt conservative working capital investment policy and conservative working capital financing policy can increase their profitability and market value.

Citation

Pestonji, C. and Wichitsathian, S. (2019), "The Impacts of Working Capital Policy on Firms’ Performances: An Empirical Study on Thai Listed Companies in Production Sector", Asia-Pacific Contemporary Finance and Development (International Symposia in Economic Theory and Econometrics, Vol. 26), Emerald Publishing Limited, Leeds, pp. 39-51. https://doi.org/10.1108/S1571-038620190000026003