An empirical examination of the relationship of working capital management and performance of nonfinancial listed companies at KSE Pakistan

Abstract

The study deems short term as the main span of analysis by focusing on the working capital management which indicates efficiency and short term financial health of the business. The relationship of working capital management with market dominance and firm performance across industries is analyzed while incorporating both static and dynamic perspectives for measuring the liquidity of firms. Furthermore, both financial (ROE and ROS) and market performance (EPS and Tobin‟s Q) of non financial sector of Pakistan are analyzed and compared across different regimes. The sample of the present study comprises of 100 nonfinancial companies listed at Karachi Stock Exchange, Pakistan for the period of 2005 to 2012. The results of Dummy variables and Logit & Probit models delineate that there exists differences in the performance of nonfinancial sector of Pakistan across different industries and regime. In addition, working capital management plays a critical role in the determination of market dominance and firm performance. It is also examined that cash conversion cycle has negative and accounts payable period has positive relationship with firm performance. Moreover, it is investigated that accounts receivable period positively affects financial performance but negatively affects market performance. On the contrary, inventory turnover period negatively affects financial performance but positively affects market performance. Furthermore, it is found that management style varies across industries and working capital management is not a statistically significant determinant for all the sectors under study.