To Survey the Effect of Working Capital Policies (Investing & Financing) on Profitability Risk (Evidence from Tehran Stock Exchange)

Abstract

Managers can increase the firm value by using the effective working capital policies. The corporate value maximization strategy is executed with a focus on return and risk. This study investigates the relationship between aggressive/conservative working capital policies and profitability risk in Tehran stock exchange listed companies. The sample includes 274 companies over the period 2006-2012. The results in all industries indicate a negative relationship between working capital investment policy and profitability risk measures. And there is a positive relationship between working capital financing policy and profitability risk measures. It means that, more the companies use conservative working capital policy, it will lead to decreasing profitability risk. And more the companies use aggressive working capital policy, it will lead to increasing profitability risk.