The Effects of Efficient Working Capital Management and Working Capital Policies on Firm Performance: Evidence from Malaysian Manufacturing Firms

Abstract

This study investigates the effect of efficient working capital management and working capital policies on the performance of manufacturing firms in Malaysia between 2010 and 2016. To achieve the objective, this study uses balanced panel data of 143 manufacturing firms that are listed on the Main Market of Bursa Malaysia. The results show that cash conversion cycle, which is used as a proxy of efficiency working capital management, is significantly negative in having an effect on the economic value added, which is used as a proxy of firm performance. Moreover, the results show that the ratio of current assets to total asset, which is used as a proxy of working capital investment policy, has a significant and positive effect on the firm performance. However, the results show that the ratio of current liabilities to total asset, which is used as a proxy of working capital financing policy, has no effect on the firm performance. The results of the study imply that the manufacturing firms in Malaysia can increase their economic value added by adopting efficient working capital management which is to reduce their cash conversion cycle. In addition, the manufacturing firms in Malaysia can improve their economic value added by adopting a conservative working capital investment policy.

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

“…Generally, studies such as those by Mohamad and Saad (2010), Ng et al (2017), Zariyawati et al (2017), Alarussi and Alhaderi (2018), Al-Mawsheki et al (2019) and Sim et al (2019) have investigated the effect of working capital management on the profitability of Malaysian firms. However, this present study differs from the aforementioned studies in several aspects.…”

Working Capital Management and Firm Performance: Evidence From Malaysia During COVID-19

“…Iterating from previous studies such as (Al-Mawsheki et al, 2019;Essel & Brobbey, 2021;Hameer et al, 2021;Satoto et al, 2022), the components in working capital management have proven record of results toward the profitability of a firm. The connection between working capital management and profitability was proven even in different levels of optimisation by variables and different climatisation of firms based on the country.…”

“…Many of the research that monitors the working capital management to firm performance is well associated with control variables that indicate whether the impact is direct or inevitable outside variable is also responsible for the changes in the outcome. The usage of firm size (SIZE) as a control variable can be seen from the number of sales by firms to determine if a small or larger size firm will have a negative or positive impact on firm performance (Al-Mawsheki et al, 2019;Anton & Nucu, 2021;Akbar et al, 2021;Essel & Brobbey, 2021;Hameer et al, 2021;Hossain & Zariyawati, 2022). Other than that, there is also the use of the current asset to total asset (CATA) ratio as a control variable because depending on the weightage of the https://doi.org/10.…”

“…Other than that, there is also the use of the current asset to total asset (CATA) ratio as a control variable because depending on the weightage of the https://doi.org/10. 15405/epsbs.2024.05.31 Corresponding Author: Imbarine Bujang Selection and peer-review under responsibility of the Organizing Committee of the conference eISSN: 2357-1330 current asset of a firm is responsible for certain variables to react and create either negative or positive impact on the firm performance (Al-Mawsheki et al, 2019;Akbar et al, 2021).…”

Working Capital Management and Extent of Influence on Public Listed Firms’ Performance in Industrial Product Industry.

“…In such state of affairs, the firms are need additional cash to run business daily operations (e.g. payment to suppliers) or else they may grapple with the difficulties in securing cash to pay off debts, at this point they may face complications such as liquidation, financial distress and even insolvency in the end (Al-Mawsheki, Ahmad & Nordin, 2019). Henceforth, the efficiency of working capital management is crucial particularly for manufacturers to counterbalance the trading-off of dual essential goals which are profitability and liquidity risk.…”