Nexus Between Working Capital Management (Wcm) and Firm Performance: Empirical Evidence From Manufacturing Sector of Pakistan Using GMM Approach

Abstract

Centered on the empirical evidence of Pakistani firms, this study aims to examine the relationship between working capital management and the performance of a company. A sample of 40 manufacturing firms listed on the PSX for the five-year period (2015-2019) were selected for analysis. Since working capital plays a major role in improving business performance, managers must find the effect of WCM on the performance of the company and manage WCM efficiently to improve profitability performance (ROA). Panel data regression is used to investigate the relation of WCM to the performance of a firm. As a result, the empirical findings of the regression analysis show that there is a significant negative relationship between ROA and CCC, and APP of manufacturing firms. Which is consistent with the earlier studies that longer the CCC and APP decline the profitability of the firm. On the other hand, ACP and InvTD have an insignificant effect on ROA for manufacturing firms. Conclusively, WCM has a substantial effect on the performance of manufacturing firms. Also, Due to endogeneity bias, the result of our analyses indicates significant differences in findings reported under the ordinary least square (OLS) approach, fixed effects, and the generalized method of moments (GMM) estimations.