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Article
Publication date: 27 April 2022

Saarce Elsye Hatane, Jennie Winoto, Josua Tarigan and Ferry Jie

This study examines the effect of working capital management and board diversity on firm profitability and firm value for a sample of Indonesian firms listed in the LQ45…

Abstract

Purpose

This study examines the effect of working capital management and board diversity on firm profitability and firm value for a sample of Indonesian firms listed in the LQ45 index. The interaction of board diversity components with working capital management adds a comprehensive discussion to enhancing working capital management efficiency.

Design/methodology/approach

This study engages a panel multiple regression method. Data from a sample of LQ45 companies from 2010 to 2016 are analysed using a fixed and a common effect model. Board diversity is further analysed in interaction variables, whether it holds the moderating role in the relationship of working capital and firm performances. This study operates return on capital employed (ROCE) as the proxy of profitability performance and EVA-Spread for the firm's value performance. The simultaneous effect test is used for the robustness test.

Findings

The results indicate that working capital management and board diversity have no significant impact towards profitability. However, they significantly positively impact firm value, meaning that the market is attracted by effective working capital management and board diversity. However, the interaction variable analysis shows that gender diversity and education level diversity weaken the impact of working capital management towards firm value.

Research limitations/implications

This study is not limited to one industry; therefore, future studies may focus on one industry and detect the pattern of working capital components in the particular industry. This study focuses on quantitative numbers to explain board diversity's interaction in working capital management to maximise shareholders' wealth. Future studies may consider a qualitative discussion to describe the quality of women's presence on the board, education level and educational background of board members.

Originality/value

Unlike most studies in which authors relate working capital and board diversity to firm performances separately, this study combines both components and analyses whether board diversity can act as a moderator effect. As part of corporate governance, it is expected that board diversity can enhance working capital management efficiency.

Details

Journal of Accounting in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 21 October 2013

Salla Marttonen, Sari Monto and Timo Kärri

The purpose of this paper is to analyze the impact of working capital management on profitability. This connection is further studied in industrial maintenance service…

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Abstract

Purpose

The purpose of this paper is to analyze the impact of working capital management on profitability. This connection is further studied in industrial maintenance service companies.

Design/methodology/approach

Analytical modeling has been used as the research method. The empirical analyses have been made on the basis of financial statements.

Findings

The paper presents an analytical flexible asset management (FAM) model, which reveals a significant negative correlation between the cycle times of operational working capital and the return on investment. The importance of working capital management is emphasized in the industrial maintenance service sector, because of light fixed assets and good profitability.

Research limitations/implications

There are some mathematical limitations in the applicability of the model introduced in this paper. These limitations should be addressed in further research.

Practical implications

The FAM model can be utilized as a tool in decision making in firms, both in the short term and in the long term. On the basis of this paper, the decision makers can consider how important working capital management is in their industry. In the industrial maintenance service business, more attention should be paid to active management of working capital.

Originality/value

The FAM model is a new decision-making tool. The paper also contributes to the unexplored perspective of industrial maintenance companies. The paper is valuable to service companies, as the research of working capital management has mostly focussed on manufacturing industries.

Details

Journal of Quality in Maintenance Engineering, vol. 19 no. 4
Type: Research Article
ISSN: 1355-2511

Keywords

Article
Publication date: 30 March 2012

Bana Abuzayed

The purpose of this paper is to examine the effect of working capital management on firms’ performance for a sample of firms listed on a small emerging market, namely…

17757

Abstract

Purpose

The purpose of this paper is to examine the effect of working capital management on firms’ performance for a sample of firms listed on a small emerging market, namely Amman Stock Exchange.

Design/methodology/approach

The paper includes a conceptual as well as empirical analysis, in which data from a sample of listed firms for the period from 2000 to 2008 are analyzed to examine if more efficient working capital management improves firms’ accounting profitability and firms’ value. Cash conversion cycles as well as its components are used as measures of working capital management skills. In this study, two performance measures are used: one accounting and one market measure, believing that wealth maximization is shareholders’ main concern. To bring up more robust results, this study used more than one estimation technique, including panel data analysis, fixed and random effects, and generalized methods of moments.

Findings

Using robust estimation techniques this study found that profitability is affected positively with the cash conversion cycle. This indicates that more profitable firms are less motivated to manage their working capital. In addition, financial markets failed to penalize managers for inefficient working capital management in emerging markets.

Originality/value

The paper's originality and value lies in suggesting that policy makers in emerging markets need to motivate and encourage managers and shareholders to pay more attention to working capital through improving investors’ awareness and improving information transparency.

Details

International Journal of Managerial Finance, vol. 8 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 11 January 2013

Amarjit S. Gill and Nahum Biger

The purpose of this study is to investigate the impact of corporate governance on working capital management efficiency. This study also seeks to extend the findings of…

7653

Abstract

Purpose

The purpose of this study is to investigate the impact of corporate governance on working capital management efficiency. This study also seeks to extend the findings of Gill and Shah.

Design/methodology/approach

This study applied a co‐relational research design. A sample was selected of 180 American manufacturing firms listed on the New York Stock Exchange (NYSE) for a period of 3 years (from 2009‐2011).

Findings

The findings of this study indicate that corporate governance plays some role in improving the efficiency of working capital management.

Research limitations/implications

This is a co‐relational study that investigated the association between corporate governance and working capital management efficiency. There is not necessarily a causal relationship between the two, although the paper provides some conjectures to the findings. The findings of this study may only be generalized to firms similar to those that were included in this research.

Originality/value

This study contributes to the literature on the factors that improve the efficiency of working capital management, and in particular on the association between several features of corporate governance and the efficiency of working capital management. The findings may be useful for financial managers, investors, financial management consultants, and other stakeholders.

Article
Publication date: 7 March 2019

Fahmida Laghari and Ye Chengang

The purpose of this paper is to investigate the relationship between working capital management and corporate performance with financial constraints.

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Abstract

Purpose

The purpose of this paper is to investigate the relationship between working capital management and corporate performance with financial constraints.

Design/methodology/approach

This study uses large panel sample of Chinese listed firms over the period 2005–2015 using system generalized method of moments (GMM) estimator that controls unobserved heterogeneity of individual firms well and GMM methodology is robust to address endogeneity issues.

Findings

Empirical evidence finds inverted U-shaped relationship between working capital and corporate performance and exhibits similar evidence for financially constrained firms. Evidence shows impact of high sales and discounts on early payments at low level of working capital and dominance of opportunity cost and cost of external finance at high level of working capital. The findings of the results show that optimal working capital level of financially constrained firms is relatively lower due to high cost of external capital and debt rationing. The results also indicate that on average NET is significantly lower for firms with Tobin’s Q>1 than firms with Tobin’s Q=1, and suggest that aggressive working capital management is significantly and positively associated with higher corporate values.

Originality/value

This paper is among few that complement the existing literature by providing evidence that inverted U-shaped relationship between working capital management and corporate performance also exists in the context of Chinese listed non-financial firms. Exclusively, the relationship of working capital and corporate performance with linkage of financial constraints is scant in the context of Chinese listed non-financial firms.

Details

International Journal of Managerial Finance, vol. 15 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 6 June 2016

Anna-Maria Talonpoika, Timo Kärri, Miia Pirttilä and Sari Monto

The purpose of this paper is to develop strategies for financial working capital management and to present previous literature on financial working capital management and…

10678

Abstract

Purpose

The purpose of this paper is to develop strategies for financial working capital management and to present previous literature on financial working capital management and its measures.

Design/methodology/approach

Qualitative comparative analysis is used to formulate the strategies, and the variables in the analysis have been selected from previous literature. Empirical data consists of 91 companies listed in the Helsinki Stock Exchange during 2008-2012.

Findings

The results indicate 11 possible strategies for financial working capital management which all aim at increasing financial working capital. There are suitable strategies for all companies independent from their profitability, capital intensity or working capital requirements.

Research limitations/implications

The presented strategies have been created theoretically and have not been tested in companies, which could be done in future research.

Originality/value

This study has three contributions. First, previous literature on financial working capital management is reviewed. Second, a novel measure for financial working capital is developed. Third, strategies for financial working capital management are presented.

Details

International Journal of Managerial Finance, vol. 12 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 16 September 2020

Ali İhsan Akgün and Ayyüce Memiş Karataş

This study examines the relationship between working capital management and business performance.

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Abstract

Purpose

This study examines the relationship between working capital management and business performance.

Design/methodology/approach

The relationship between the working capital management and business performance is examined using panel data analysis for a sample of EU-28 listed firms for the period from 2003 to 2012. To examine this relationship, an ordinary least squares (OLS) regression model is used to analyze the data obtained from the sample. The dependent variable consists of three measurements, namely return on asset (ROA), return on equity (ROE) and earnings before interest and taxes margin (EBITM), which are used as proxies for accounting-based measures of performance.

Findings

The authors examined the aforementioned relationship during the 2008 financial crisis. The OLS regression analysis suggests that there is a negative relationship between gross working capital and business performance for code law countries. The results also show that liquidity measures estimated by current ratio have a statistically significant impact on business performance indicated by ROA for all EU countries. The 2008 financial crisis had a significantly negative impact on ROA. Additionally, the findings regarding financial inclusion show a negative relationship between gross working capital and business performance among EU and other performer countries.

Practical implications

Overall, the empirical findings are consistent with Afrifa's (2016), who suggests that cash flow should increase investment in working capital to improve performance indicated by EBITM for old EU members.

Originality/value

While many empirical studies investigate the relationship between working capital and firm profitability, most do not consider the impact of the 2008 financial crisis apart from Tsurate (2019). The authors examine whether legal origins are important determinants of working capital management policies and business performance. Thus, empirically, the code law countries have a negative relationship between gross working capital, business performance and EBITM.

Details

International Journal of Managerial Finance, vol. 17 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 3 May 2016

Laura Aseru Orobia, Kesseven Padachi and John C. Munene

– The purpose of this paper is to investigate factors explaining take-up rate of working capital management routines in small-scale businesses.

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Abstract

Purpose

The purpose of this paper is to investigate factors explaining take-up rate of working capital management routines in small-scale businesses.

Design/methodology/approach

A cross-sectional survey research was employed using a sample of 450 small-scale businesses in the central business district of Kampala, Uganda. Common working capital management routines and activity rates were analyzed using descriptive statistics. While binary logistic regression analysis was conducted to discriminate between businesses that engage in working capital management frequently and those that do so less frequently.

Findings

The results show that on average, the most frequently performed routines relate to safeguarding cash and inventory, and credit risk assessment. Payment management routines are least performed. Second, business size, perceived usefulness and attitude explain high take-up rate of working capital management routines in small-scale businesses. Business age, level of education and financial management training are inconsequential in determining the likelihood to undertake working capital management frequently.

Research limitations/implications

Paucity of studies world over on the input perspective of working capital management limited comparison of the findings with previous research. Future studies should be conducted to confirm the results.

Practical implications

The study findings imply that policy makers should develop work-based training programs that take into account the business size effect.

Originality/value

This study contributes to existing working capital management literature by explaining activity rate in a developing country perspective.

Details

Journal of Accounting in Emerging Economies, vol. 6 no. 2
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 10 November 2014

Vikash Ramiah, Yilang Zhao and Imad Moosa

This paper aims to document the measures taken by Australian corporate treasurers in the areas of cash, inventory, accounts receivable, accounts payable and risk management

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Abstract

Purpose

This paper aims to document the measures taken by Australian corporate treasurers in the areas of cash, inventory, accounts receivable, accounts payable and risk management to survive the global financial crisis (GFC).

Design/methodology/approach

Using qualitative techniques like interviews and a survey questionnaire, this paper summarises the various measures adopted by working capital managers.

Findings

The results show that more than half of the participants in the survey altered their working capital management practices during the crisis. Capital expenditure was curtailed, as they aimed at preserving their cash levels while reducing inventory levels. Credit worthiness of institutions became more important, and there was a general decline in credit availability. The results also show that Australian working capital managers exhibit behavioural biases, particularly overconfidence.

Originality/value

It is the first paper that uses open-ended questions to capture the effects of the GFC on working capital management in Australia.

Details

Qualitative Research in Financial Markets, vol. 6 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 4 June 2018

Zhenjie Wang and Zhuquan Wang

Under the guidance of Professor Wang Zhuquan’s channel-based working capital management concept, this paper, using a sample of A-listed companies from 2007 to 2013, aims…

Abstract

Purpose

Under the guidance of Professor Wang Zhuquan’s channel-based working capital management concept, this paper, using a sample of A-listed companies from 2007 to 2013, aims to explore the possibility of measuring vendor relationships from the supply chain (channel) perspective for the first time, making universal testing for working capital management based on vendor relationships. Through systematically answering the question of who is the biggest beneficiary of working capital management based on vendor relationships and to discuss whether suppliers are more willing to provide “timely help” to weak enterprises or to exert an “icing on the cake” effect on strong enterprises, this paper provides a systematic explanation of the causes and economic consequences of working capital management based on vendor relationships.

Design/methodology/approach

The authors constructed three models to test the hypotheses of this study. Model (1) explores the cause of working capital management based on vendor relationship from three angles: market position, industry competition degree and property right. Models (2) and (3) examine the economic consequences of working capital management based on vendor relationship from the two aspects of alleviating financing constraints and improving enterprises’ sustained growth capability.

Findings

Working capital management based on vendor relationships has a more significant “timely help” effect on weak companies, which was proved by the inclination of companies with lower market positions, higher industrial competition and private ownerships to adopt working capital management based on vendor relationships. From the perspective of economic consequences, while China’s listed companies benefit generally from working capital management based on vendor relationships, the weak enterprises are the biggest beneficiaries. Based on vendor relationships, the weak enterprises can relieve financing constraints and improve continuous growth capacity. It provides further evidence that suppliers could provide “timely help” to weak enterprises.

Originality/value

The results of this study find that the competition between supply chains replaces the competition among enterprises, and suppliers are more willing to provide “timely help” to weak enterprises rather than to exert an “icing on the cake” effect on strong enterprises. In addition, the working capital management based on vendor relationships facilitates the cooperation of enterprises and suppliers and improves the overall efficiency of the supply chain.

Details

Nankai Business Review International, vol. 9 no. 2
Type: Research Article
ISSN: 2040-8749

Keywords

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