Working Capital Management and Corporate Performance: Evidence from Iranian Companies

Abstract

The present research studies the effect of working capital management over the performance of firms Listed in Tehran Stock Exchange (TSE). Average Collection Period, Inventory Turnover in days, Average Payment Period, Cash Conversion Cycle, and Net Trading Cycle were used to assess working capital management, and Net Operating Profitability was used to assess firms’ performance. The findings of studying 50 different companies during the time period between 2006 and 2009 by using a multi- regression model showed that there is a negative and significant relationship between the variables of Average Collection Period, Inventory Turnover in day, Average Payment Period, Net Trading Cycle and the performance of firms Listed in Tehran Stock Exchange (TSE). There were no evidences to prove the existence of a significant relationship between Cash Conversion Cycle and the company's performances (NOP). The results showed that the increase in Collection Period, Payment Period, and Net Trading will lead towards the reduction of profitability in the company. In other words, managers can increase the profitability of their companies reasonably, by reducing Collection Period, Inventory Turnover, and Payment Period.