Aggregate and Disaggregate Measures of Operating and Non-Operating Working Capital Influence on Firm Performance: Evidence From Malaysia

Abstract

The study is aimed at investigating the following issues: firstly, whether the different types of working capital, namely operating and non-operating working capital influence the short-term (return on assets) and long-term (Tobin’s Q) firm performance differently, and secondly whether the different measures of operating working capital, namely disaggregated and aggregated (cash conversion cycle) operating working capital, influence the short-term (return on assets) and long-term (Tobin’s Q) firm performance differently. It uses the panel data of 208 listed non-financial firms in Malaysia covering the period from 2013 to 2017, and the data has been sourced from Datastream. It employs the panel corrected standard errors regression model. The study has found that quicker sale of inventory increased both the short-term and long-term performance of the firm. Likewise, faster collection of receivables increased the long-term, but not short- term, performance. However, prompter payment of payables increased both the short-term and long-term performance. The study has also found that the disaggregated working capital measures – inventory, receivables, and payables contributed to a more nuanced influence of working capital on performance, compared to the aggregated working capital. The study has provided novel evidence that– higher non- operating working capital increased firm performance.

Cash flow management and its effect on firm performance: Empirical evidence on non-financial firms of China

“…Moreover, Prior research view that careful handling of the cash conversion cycle leads firms to significantly higher returns [ 13 , 23 , 75 , 76 , 97 ]. This outcome is consistent with the research by Simon et al [ 120 ], Soukhakian and Khodakarami [ 121 ], Basyith et al [ 6 ], Yousaf et al [ 60 ], and Bashir and Regupathi [ 2 ]. The findings of the results show a significant negative association of OCC with firm financial performance in the current quarter for highly leveraged firms.…”

“…Similar findings have been reported by companies in China [ 59 ], the Czech Republic [ 60 ], Ghana [ 25 ], Indonesia [ 6 ], Spain [ 61 ], and Visegrad Group countries [ 62 ]. In contrast, few studies reported an inverse correlation between CCC and firm performance in India [ 63 ], Malaysia [ 2 ], and Vietnam [ 64 ]. A negative correlation indicates that a higher CCC leads to lower company performance.…”

“…Firms’ efficient cash flow management is significant tool to enhance financial performance [ 1 , 2 ]. Exercising proper management of cash flow is vital to the persistence of business [ 3 ].…”

How Critical was the COVID-19 Pandemic? Exploring The Effects on Small Business Finance

“…In finance cycles, the long-age argument for supremacy between profits and cash flow persists. The fact, however, is that both are vital (Ehiedu, 2014) to any business and interrelated (Bashir and Regupathi, 2021;Rajapaksha and Weerawickrama, 2020) in financial management. The importance of liquidity to small businesses is buttressed by McMahon and Stanger (1995), who liken it to a matter of life and death.…”

Working Capital Management and Performance of Telecommunication Companies in ASEAN-4: The Role of Financial Development

“…According to Sagner (2014), working capital mismanagement hinders financial performance. Working capital management is usually proxied by cash conversion cycle (CCC) variables, inventory conversion period, average accounts receivable period, and accounts payable period both in aggregate and disaggregate (Bashir & Regupathi, 2021;Basyith et al, 2021;Chand Garg, 2022;Firmansyah et al, 2018;Hoang, 2015;Hussain et al, 2021;Kayani et al, 2020;Mandipa & Sibindi, 2022;Mansoori & Joriah Muhammad, 2012;S et al, 2017;Simon et al, 2019;Syeda, 2021;Tahir & Anuar, 2016).…”