Mediating Role of Working Capital Management in the Relationship of Corporate Governance Measures and Firm Performance: Panel Study from Pakistan

Abstract

Purpose: Corporate governance and management of working capital are seen as two main fields of corporate finance. The purpose of the research study is to examine the interrelationships between corporate governance, working capital management and performance of the firm.Design/Methodology/Approach: Sample consists of 140 non-financial firms listed on the Pakistan Stock Exchange from 2008 to 2015. Data has been analyzed by using structural equation model. Mediating effects of managing working capital have been tested by using the approach suggested by Preacher and Hayes (2008).Findings: The findings revealed that current ratio partially mediates the effect of size of the board and CEO role duality whereas fully mediates the Impact of a concentration of ownership on firm results. The other variable of working capital management i.e. cash conversion cycle has not shown any mediating effect in Corporate governance and the relationship between firm results. For the other relationship the study found that board size affects firm performance positively whereas CEO duality and audit committee independence have negative impact on profitability of firms. For the relationship of working capital management on firm Performance, the study identified substantial negative and positive impacts on firm performance of the cash conversion period and current ratio, respectively.Implications/Originality/Value: The current study was based on least considered variables and the pioneer in testing the complex relationship through SEM-AMOS.