Effect of working capital management and financial constraints on corporate performance

• Main Author: Adebowale, Nurein Saheed
• Format: Dissertation
• Language: English; English
• Published: 2014
• Subjects: HD28-70 Management. Industrial Management; HG Finance
• Online Access: https://etd.uum.edu.my/4151/1/s814283.pdf; https://etd.uum.edu.my/4151/7/s814283_abstract.pdf; https://etd.uum.edu.my/4151/

The aim of this paper is to contribute to the previous studies by given an empirical evidence of the impact of working capital management on corporate performance and the influence of financial constraints on the relationship between corporate performance and working capital management of Malaysian listed firms in Bursa Malaysia. The data for this study was retrieved from the DataStream, consisting of 215 firms for the period 2008-2012. Tobin’s Q is used as a proxy for corporate performance, while net trade cycle (NTC) and current ratio (CR) are used as proxies for working capital management. Other independent variables are firm size (SIZE), leverage (LEVERAGE), growth opportunity (GROWTH) and return on assets (ROA), while dividend (DDIV) is used as a proxy for financial constraints. By applying correlation, Ordinary Least Square (OLS), Fixed-Effect and Random-Effect regression analyses, the results show that corporate performance is related and positively significant to net trade cycle. This study also finds that firms’ financial constraint is significant and positively related to working capital management and corporate performance. These findings indicate that managing an efficient and effective working capital as impact on corporate performance and firms with less financial constraints achieve better corporate performance than firms with high financial constraints. This study suggests that for a firm to achieve a better performance cum maximizing shareholder’s value, it must achieve a better working capital with a longer net trade cycle (NTC) as well as meeting its short-term obligations.