Determinant Factors and Working Capital Requirement

Abstract

The objective of the current study is to investigate the various factors determining the working capital requirements in Pakistani non-financial firms by taking into account different economic and financial variables relating to the business over a period of six years (2004)(2005)(2006)(2007)(2008)(2009). The present study is anticipated to add to improve understanding the financial and non-financial firm related factors that form up working capital requirements of firms in the emerging markets like Pakistan. This paper contributes the literature on the determinants of working capital management in non-financial firms in at least two ways. Firstly, it focuses on the Pakistani non-financial firms where only limited study has been conducted. Secondly, it confirms some of the findings of previous studies. For the purpose of sampling, only listed companies from Karachi Stock Exchange were selected. Here, the study will discuss about the data source, sample size and variables used in the study. Descriptive analysis, ANOVA, Correlation and Regression analysis will be applied on the panel data to see the relationship of different variables with Working Capital management. More specifically, the key objectives are:To determine the factors influencing the working capital requirements for 385 Pakistani firms listed on Karachi Stock exchange.(ii) To find out the relationships between working capital and different factors like size, leverage, economic growth, etc.(iii) To draw conclusion about these determinants of working capital management requirements.Keywords: working capital, management, determinant factors, non-financial firms Literature ReviewShin and Soenen (1998) analyzed a large sample of listed American companies during 1975-1994 and found a strong negative relationship between Cash Conversion Cycle and corporate profitability. Weinraub and Visscher (1998) maidenly attempted to analyze the relative association between aggressive and conservative Working Capital practices. A Simple Regression Model was run that provide a great and significant negative relationship between industry asset and liabilities policies. They urged that whenever relative aggressive Working Capital assets policies were pursued it were balanced by relative conservative Working Capital financing policies. They also found that each industry had its own and relatively different management policies.

Determinants of Working Capital Requirement on Manufacturing Firms

“…The study found that operating cycle, return on assets, leverage, size and level of economic activity is negatively related to working capital requirements of a firm where as operating cash flows and sales growth are positively related to working capital requirements. [11] A study of Nazir, M & Afza, T Working capital requirement and the determining factors in Pakistan by employing a study of 132 manufacturing firms from 14 industrial groups that were listed on Karachi Stock Exchange (KSE) between the periods 2004-2007 was undertaken. The pooled panel regression model result found that Leverage of a firm is strongly and negatively related to the working capital management of a firm, indicating that with a rising debt to total assets ratio, the firms are supposed to pay more attention to efficient management of working capital to avoid much more capital being tied up in account receivables and inventories.…”

İmalat Sektöründeki İşletmelerde Çalışma Sermayesi Belirleyicileri Bıst Örneği

“…Bu bulgu Abbadi ve Abbadi (2013), AL-Taleb vd. (2010), Azeem ve Marsap (2015), Doğan ve Elitaş (2014), Gill (2011), Manoori ve Muhammad (2012 ile Palombini ve Nakamura'nın (2012) çalışmalarıyla benzerdir. Firmaların büyüklüğünün artmasıyla birlikte artan faaliyet hacmi, çalışma sermayesi oranını azaltarak, çalışma sermayesi ihtiyacını arttırmaktadır.…”

Pengaruh Kinerja Perusahaan terhadap Kebutuhan Modal Kerja Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia

“…Penelitian terkait faktor determinasi dari kebutuhan modal kerja terdapat variasi hasil. Azeem & Marsap (2015) melakukan penelitian faktor determinasi kebutuhan modal kerja pada perusahaan non keuangan Pakistan dengan memperhatikan variabel-variabel ekonomi dan keuangan. Hasilnya menunjukkan bahwa siklus operasi, OCF, ROA, debt dan ukuran perusahaan signifikan terhadap kebutuhan modal kerja perusahaan.…”