The impact of working capital management on cash holdings of large and small firms: evidence from Jordan

Abstract

Liquidity is a firm’s ability to pay its current obligations as they come due and thus remain in business in the short run, which reflects the ease with which assets can be converted to cash. The objective of working capital management (WCM) is to minimize the cost of maintaining liquidity while guarding against the risk of insolvency, working capital policy applies to short-term decisions, and capital structure finance applies to long-term decisions.Several studies have been conducted on the impact of WCM on cash holding levels. The impact of WCM on liquidity and cash holding levels is analyzed in this study. The study also makes a comparison between large- and small-scale firms. Panel data for 62 Jordanian industrial firms covering an eleven-year period (2006–2016) have been analyzed. The descriptive analysis indicates that large firms hold more cash than small firms, as well as more debt, cash flow and growth.The findings of the data set indicate that WCM, as a variable (working capital net of cash), is a strong predictor of firm cash holding levels. When a firm has several cash substitutes, it will maintain low cash levels. The separate analysis shows that there are significant differences between small- and large-scale firms for determinates related to cash holding levels. Firm size and cash flow ratios were strong predictors of cash holding levels for both samples.

Working Capital Management and Cash Holdings: Evidence from LQ45 Companies in Indonesia

“…This study found that net working capital had a positive effect on the company's cash holding on LQ45 companies on the Indonesia Stock Exchange. The result of this study does not support by the results of Aftab et al (2018) and also Shubita (2019), which found a negative influence of working capital on the company's cash holding. However, the results of this study supported by the opinion of Abel (2008), which states that working capital can have a positive effect on the company's cash holding.…”

“…Working capital management, as measured by net working capital, has a positive impact on corporate cash holdings. The results of this study contradict the results of previous studies conducted by Ozkan & Ozkan (2004), Aftab et al (2018), Shubita (2019). They explain that net working capital is cash substitution so that net working capital has a negative influence on the company's CECCAR BUSINESS REVIEW ISSN 2668-8921 • ISSN-L 2668-8921 N 0 9/2021 www.ceccarbusinessreview.ro cash holdings.…”

“…Cheaper sources of funding will reduce the cost of equity capital. Shubita (2019) explains that a company's business decisions have a boundary between business liquidity risk and profitability. Working capital management focuses on the quality of the company's current assets.…”

Dampak Manajemen Modal Kerja Terhadap Cash Holding Pada Industri Consumer Goods Indonesia

“…Perusahaan memerlukan lebih banyak kas dikarenakan aktivitas yang lebih besar, dan sebaliknya perusahaan kecil memerlukan lebih sedikit kas. Menurut Gao et al, pada tahun 2013 perusahaan kecil sering menyimpan kas yang besar karena mereka lebih berisko mengalami masalah keuangan yang besar yang disebabkan oleh kendala keuangan, dimana perusahaan besar cenderung untuk menjaga tingkat yang rendah dari kas cadangan karena skala ekonomi (Shubita 2019).…”

The Impact of Institutional Performance on Payment Dynamics: Evidence From the Italian Manufacturing Industry

“…or public limited companies (i.e., S.P.A.); -specific features of companies and their ability to innovate, i.e., dummy control variables indicating whether a company is an "innovative start-up" or an "innovative small medium enterprise". The analysis of working capital is relevant because it represents firms' self-financing (Shubita, 2019;Prasad et al, 2019;Gill et al, 2019). Positive values represent the financial solvency of firms in the short term, while negative results mean that some assets are financed by current liabilities.…”