DETERMINANTS OF WORKING CAPITAL "EVIDENCE FROM PRODUCTION AND SERVICE SECTOR OF PAKISTAN"

Authors

  • Fazal Safia School of Business and Management :University of Gujrat, Pakistan

DOI:

https://doi.org/10.47604/ijfa.1147

Keywords:

Working Capital, Determinants of working capital, Profitability, Leverage, Firm size

Abstract

Purpose: Basic purpose of this study is to explore the factors or determinants of working capital. The effect of this research is threefold as its first aim is to explore the determinants of working capital in the service sector, second is to find the determinant of working capital in the production sector and third is to make a comparison between the findings of both sectors.

Research Methodology: Quantitative technique of data collection has been used under explanatory research method and working capital has been taken as dependent variable while return on assets, return on equity, leverage, sales growth, firm size of total assets and firm size of total sales have been taken as independent variables from production and services sector of Pakistan. A sample of 34 companies listed at KSE for 5 years (2007-2011) has been selected with a total observation of 170. Datawerecollectedfrombalancesheetsofthese companies fromofficialsiteofStateBankof Pakistan.

Findings: The finding of this research shows that the same selected variables are not a significant predictor of working capital in both sectors. In the service sector, all selected variables are significant predictor or working capital except for short term debt to total assets variable. However, in the production sector, only sales growth and return on assets is a significant predictor of working capital requirement.

Unique contribution to theory, practice and policy: In a developing country like in Pakistan, very little work has been done on working capital determinants. In developed countries and other developing countries, enough work has been done in that area, however, not previously study covers the comparison of the diverse sectors to determine working capital. This study will add a new dimension to the existing literature and cover the gaps in existing literature byaddingthe comparisonofdiverse nature sectors into the existing literature.

Downloads

Download data is not yet available.

References

Abbadi, S. M., & Abbadi, R. T. (2013). The determinants of working capital requirements in Palestinian industrial corporations. International Journal of Economics and Finance, 5(1), 65-75.
Abuzayed, B. (2012). Working capital management and firms' performance in emerging markets: the case of Jordan. International Journal of Managerial Finance.
Akinlo, O. O. (2012). Determinants of working capital requirements in selected quoted companies in Nigeria. Journal of African Business, 13(1), 40-50.
Aminu, Y. (2012). Determinants of inventory managements as a component of working capital in ensuring corporate profitability-a conceptual approach. Research Journal of Finance and Accounting, 3(11), 58-61.
Archavli, E., Siriopoulos, C., & Arvanitis, S. (2012). Determinants of working capital management. Available at SSRN 2179907.
Azam, M., & Haider, S. (2011, 09/24). Impact of Working Capital Management on Firms' Performance: Evidence from Non-Financial Institutions of KSE-30 index.
Bagchi, B., & Khamrui, B. (2012). Relationship between working capital management and profitability: A study of selected FMCG companies in India. Business and Economics Journal.
Bagh, T., Nazir, M. I., Khan, M. A., Khan, M. A., & Razzaq, S. (2016). The impact of working capital management on firms financial performance: evidence from Pakistan. International Journal of Economics and Financial Issues, 6(3).
Bandaranayake, S., & Jayasinghe, P. (2014). Factors influencing the efficiency of commercial banks in sri lanka. Sri Lankan Journal of Management, 18(1).
Edi, N., & Saad, N. (2010, 10/20). Working Capital Management: The Effect of Market Valuation and Profitability in Malaysia. International Journal of Business and Management, 5(11). https://doi.org/10.5539/ijbm.v5n11p140
Gill, A., Biger, N., & Mathur, N. (2010, 01/01). The Relationship Between Working Capital Management And Profitability: Evidence From The United States. Business and Economics Journal, 1-9.
Mathuva, D. (2015). The Influence of working capital management components on corporate profitability.
Mohamad, N. E. A. B., & Saad, N. B. M. (2010). Working capital management: The effect of market valuation and profitability in Malaysia. International Journal of Business and Management, 5(11), 140.
Mongrut, S., & Winkelried, D. (2019). Unintended effects of IFRS adoption on earnings management: The case of Latin America. Emerging Markets Review, 38, 377-388.
Palombini, N. V. N., & Nakamura, W. T. (2012). Key factors in working capital management in the Brazilian market. Revista de Administração de Empresas, 52(1), 55-69.
Rehn, M.-E. (2012). Effects of Working Capital Management on Company Profitability-An industry-wise study of Finnish and Swedish public companies (Available on Internet) Svenska handelshögskolan].
Saarani, a. n., & Shahadan, F. (2012, 01/01). The Determinant Factors of Working Capital Requirements for Enterprise 50 (E50) Firms in Malaysia: Analysis Using Structural Equation Modelling. Scottish Journal of Arts, Social Sciences and Scientific Studies, 5, 52-66.
Seeger, S., Locker, A., & Jergen, C. (2011, 01/01). Working capital management in the Swiss chemical industry. https://doi.org/10.5167/uzh-58453

Downloads

Published

2020-10-02

How to Cite

Safia, F. (2020). DETERMINANTS OF WORKING CAPITAL "EVIDENCE FROM PRODUCTION AND SERVICE SECTOR OF PAKISTAN". International Journal of Finance and Accounting, 5(1), 67 – 78. https://doi.org/10.47604/ijfa.1147

Issue

Section

Articles