DOES WORKING CAPITAL MANAGEMENT AFFECT CORPORATE PROFITABILITY?

Authors

  • Zia ur Rehman University of Haripur
  • Asad Khan University of Haripur
  • Syed Abdul Qadir Shah University of Haripur
  • Asim Rahman

Abstract

Managing working capital efficiently and effectively is critical for modern organizations as it directly affects firm’s profitability, liquidity and riskiness. A vast majority of empirical studies have focused on developed countries whereas in case of developing countries like Pakistan it is somewhat under researched. The economy of Pakistan is passing through challenging times with rising inflation, energy crisis, poor law and order etc. Therefore, the purpose of the study was to investigate whether working capital policies adopted by listed organizations within the sugar industry of Pakistan (PSX) are efficient or not in these challenging conditions and what kind of effect (positive or negative) they have on the profitability of the firm. Data from 2006 to 2015 was collected for this study and Ordinary Least Squares (OLS) technique was used to analyse the effect of working capital management on firm profitability. Empirical results of the study show that all four components of working capital used in this study have statistically significant and negative relationship with firm’s profitability. 

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Published

31.12.2017