Abstract
The study is aimed at investigating the following issues: firstly, whether the different types of working capital, namely operating and non-operating working capital influence the short-term (return on assets) and long-term (Tobin’s Q) firm performance differently, and secondly whether the different measures of operating working capital, namely disaggregated and aggregated (cash conversion cycle) operating working capital, influence the short-term (return on assets) and long-term (Tobin’s Q) firm performance differently. It uses the panel data of 208 listed non-financial firms in Malaysia covering the period from 2013 to 2017, and the data has been sourced from Datastream. It employs the panel corrected standard errors regression model. The study has found that quicker sale of inventory increased both the short-term and long-term performance of the firm. Likewise, faster collection of receivables increased the long-term, but not short- term, performance. However, prompter payment of payables increased both the short-term and long-term performance. The study has also found that the disaggregated working capital measures – inventory, receivables, and payables contributed to a more nuanced influence of working capital on performance, compared to the aggregated working capital. The study has provided novel evidence that– higher non- operating working capital increased firm performance.
Highlights
The literature on corporate finance has given a greater emphasis and focus on long-term financial decisions
This study used the panel data set of non-financial firms listed on Bursa Malaysia
From a total of 776 non-financial manufacturing firms listed on Bursa Malaysia, 208 firms were selected because they had complete data, i.e., throughout the period of study from 2013 to 2017 in Datastream
Summary
The literature on corporate finance has given a greater emphasis and focus on long-term financial decisions. The short-term resources (i.e., current assets) and short-term obligations (i.e., current liabilities) are important components of total assets, and it is vital too that they be given due scrutiny. The management of current assets and current liabilities is known as working capital management. The size of current assets and current liabilities varies from firm to firm. Expansion of a firm’s operations could induce an increase in working capital investment (Padachi, 2006). Additional investment in the working capital is expected to have positive effects for the firms with low working capital levels, it may have adverse effects and lead to the loss of shareholder value for firms with already high working capital levels
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