The determinants of working capital management and firms performance of textile sector in pakistan

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Web End = Qual Quant (2016) 50:605618

DOI 10.1007/s11135-015-0166-4

Mohammad Tahir Melati Binti Ahmad Anuar

Published online: 5 February 2015 Springer Science+Business Media Dordrecht 2015

Abstract The aim of this study is to determine the relationship of working capital management and the rms protability in the textile sector of Pakistan. A sample of 127 textile rms listed in the Karachi stock exchange for the period 20012012 are used in the study. The study uses the dynamic panel generalized method of moments to analyze the data. The ndings revealed that average collection period in days, net working capital level, current assets to operating income, current assets to sales ratio, current liabilities to total assets has negative impact on return on assets, whereas the accounts payable period in days, inventory turnover in days, cash conversion cycle, net trade cycle, cash turnover ratio, current assets to total assets ratio, and current ratio has a positive association with protability. In case of the control variables, sales growth and rm size have positive associations with protability, while nancial debt ratio, gross domestic product, ination and interest depicted negative results. The ndings highlight the signicance of the working capital components with profitability in the textile sector of Pakistan and recommends that by designing and implementing effective policies on working capital, the rms protability can be enhanced.

Keywords Working capital management Return on assets Cash conversion cycle

Generalized method of moments (GMM)

1 Introduction

Working capital management is considered vital for corporate nance due to its signicant inuence on the rms liquidity and protability (Jeng-Ren et al. 2006; Nazir and Afza

M. Tahir (B) M. B. A. Anuar

Faculty of Management (FM), Universiti Teknologi Malaysia (UTM), Skudai, 81310 Johor Bharu, Malaysiae-mail: [email protected]

M. Tahir

Department of Management Sciences, COMSATS Institute of Information Technology, Islamabad, Pakistan

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606 M. Tahir, M. B. A. Anuar

2009; ALShubiri 2011). Working capital is regarded as a life, philanthropic gure for any economic activity, which plays a pivotal role in...