The Integrated Measuring of Working Capital Management Efficiency on Financial Performance in Indonesia Stock Exchange

Petrus Emanuel De,Erie Febrian ,Rina Indiastuti

doi:10.22610/imbr.v7i3.1150

Abstract

The purpose of this study is to determine the differences effect of working capital efficiency on financial performance during periods of crisis. The measurement is made during the crisis compared to the entire period of observation by using cash conversion cycle (CCC) and working capital policy (both investment policy and financing policy) on the profitability (by return on assets) and market value (by Tobinâ€™s Q). Using all annual financial data of 104 manufacturing firms listed in Indonesia Stock Exchange (IDX) over the period 2005-2013. These periods include the global financial crisis. The panel data set was developed for nine years, which produced 936 firms-years observations. This study uses multivariate regression models with hierarchical regression analysis approach. This approach uses the global financial crisis period as a dummy variable. The results showed that there were differences in the effect of the cash conversion cycle (and its components) and working capital policy on profitability during the crisis period compared to the whole period. In contrast, no differences effect the cash conversion cycle (and its components) and working capital policy on the value of the company in the crisis period compared to the whole period. The manufacturing industries do not apply the efficiency in the management of working capital. The global financial crisis tends the companies to change their working capital policy more efficiently. The researcher can extend this study by doing a qualitative research how to chief financial officers invest and finance day-by-day operation.

Highlights

Working Capital (WC) efficiency of public firms during the global financial crisis that began in late 2007’s is an important issue from theoretical and practical standpoint
Variables Used in the Study: In order to measure the efficiency of WCM using conversion cycle (CCC) and its components as used by Raheman and Nazr (2007) as follow: Cash Conversion Cycle (CCC) =,where a lower period means a relatively management efficiency
These results indicate that Indonesian manufacturing firms have a conservative WCM in all year, but it turns to aggressive in crisis years

Summary

Introduction

Working Capital (WC) efficiency of public firms during the global financial crisis that began in late 2007’s is an important issue from theoretical and practical standpoint. The emphasis on firms’ resource efficiency is, because it may have an important impact on financial performance. WC in financial decision making as being a part of the investment assets that require appropriate financing. These decisions have an impact on both short and long term performance. WC is often ignored in financial decisions because it has involved short term investment and financing (Ray, 2012). Assets and short-term liabilities are an important component of the overall company’s assets and must be analyzed carefully. The management of short-term assets and liabilities requires more investigation as an important role in risk, profitability and value of the firm (Nazir and Afza, 2009)

Objectives

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Results

Conclusion