Working Capital Management and Shareholder’s Wealth Creation: Evidence from Manufacturing Companies Listed in Oman

Abstract

Working capital management (WCM) is a key factor in the success of manufacturing companies when credit is restricted, as is the case in the current climate caused by the COVID-19 crisis. The main purpose of this paper is to investigate the relationship between working capital management, earnings quality, sales growth, and shareholders’ wealth of listed manufacturing firms in Oman. The study used balanced panel data of 31 manufacturing firms listed on the Muscat Stock Exchange (MSE) from 2004 to 2019. The study reveals that days in working capital, cash conversion cycle, payable deferred period, sales growth, and earnings quality positively affects shareholder’s wealth proxied by the return on assets, whereas, days in working capital have a negative effect on return on assets. Similarly, working capital management was found to have no influence on the earnings per share (EPS). It was also documented that sales growth and earnings quality positively impacted EPS. The study concluded that improving sales growth and earnings quality would result in shareholders’ wealth creation. The results are helpful to manufacturing companies to improve their business performance and social welfare through a direct and indirect chain of raising investments, pay, and production scales. This study adds knowledge to the body of literature on working capital management, earnings quality, and sales growth in the areas of methodology, the impact of WCM components on manufacturing firms’ shareholder value, and socioeconomic evidence from Oman.

The impact of working capital management on the profitability of listed halal food and beverage companies

“…(2021) and Njoroge and Opuodho (2022), showed that APP improved firm profitability. Also, Panigrahi et al . (2022) found that the payment deferred period increased the financial performance of manufacturing firms in Oman.…”

“…Other studies, such as Gonçalves et al (2018), Omar et al (2021), Panda et al (2021) and Njoroge and Opuodho (2022), showed that APP improved firm profitability. Also, Panigrahi et al (2022) found that the payment deferred period increased the financial performance of manufacturing firms in Oman. Similarly, Njoroge and Opuodho (2022) uncovered that creditors' management practices enhanced firm performance in Kenya.…”

“…The findings showed that WCM has significantly increased corporate financial performance. Panigrahi et al . (2022) investigated how WCM influenced the profitability of Omani-listed manufacturing companies over sixteen years (2004–2019).…”

“…The findings showed that WCM has significantly increased corporate financial performance. Panigrahi et al (2022) investigated how WCM influenced the profitability of Omani-listed manufacturing companies over sixteen years (2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018)(2019). The study revealed that CCC improved shareholder wealth.…”

Does working capital management improve financial performance in China’s agri-food sector during COVID-19? A comparison with the 2008 financial crisis

“…For Ethiopian exporting firms, Wassie [ 49 ] observed a positive CCC-ROA relationship. Panigrahi et al [ 29 ] suggested that CCC has a positive impact on ROA while days in WC have a negative impact. In the study of Korent and Orsag [ 50 ], higher profitability of firms in Croatia is related to CCC.…”