Aggressive Working Capital Management Research Articles

CFO Demographics and Working Capital Management in China

This research examines whether Chief Finance Officer (CFO) demographics (including age, educational background, gender and tenure) impact firm working capital policies. We argue that the personal characteristics of the CFO impact corporate financial policy, such as working capital management. Using a sample of listed companies in the China Stock market over 2000–2021, we find that CFO age, gender, education, and tenure determine firm working capital management. Further, we identified that findings are more pronounced within firms that do not have state ownership, suggesting that private ownership firms are likely to have aggressive working capital management. In terms of economic significance, our results demonstrated that a one-standard-deviation rise in CFO age is associated with a decrease in working capital of 1.09% to 1.39% for the sample firms. This implies that the effect of CFO age on working capital management is economically significant, implying that it considerably impacts the financial situation. JEL Codes: G32, G34, G39

The impact of working capital management on the profitability of firms in selected industries in the Republic of Croatia

The aim of the paper is to detect the impact of working capital management (WCM) on the profitability of Croatian firms which belong to manufacturing, trade, and information and communication industries. The time frame of interest is from 2008 to 2015, and the final sample consists of 19.355 firms, i.e. 116.002 firm-year observations. The data sources are the databases of the Financial Agency and Croatian Bureau of Statistics. In order to test research hypothesis, among other methods, panel regression analysis is used. The study results show that, after controlling for firm characteristics and macroeconomic conditions, aggressive WCM has a significantly positive effect on the profitability of small firms from selected industries and for medium-sized manufacturing firms. Moreover, the results imply the existence of a significantly convex quadratic dependence and overall downward trend, marked by the increasing marginal returns of profitability with the extension of working capital cycles. The latter indicates that a more aggressive strategy significantly increases the profitability of firms at increasing rate. In other words, the managers of those firms should strive to shorten the working capital cycles in order to increase profitability. The limitations of the research are: the impossibility of spatial and temporal generalization of identified results, limited possibility of explaining identified directions and the significance of the influence of observed indicators of variables, as well as detection of reasons for agreement or contradiction with previous research results, unavailability of certain data, and omission of potentially significant variables and/or their alternative indicators. Scientific contribution can be summarized as follows: a comprehensive and systematic review of previous research; in addition to dominant linear impact testing, testing of nonlinear quadratic relation between the observed variables, which, is beginning to appear in the relevant literature and, accordingly, is generally poorly represented in all the previous studies, and has not been conducted in the Republic of Croatia; respectable spatial and temporal coverage; the expansion of coverage from listed and large firms to private firms and small and medium-sized firms.

THE WORKING CAPITAL MANAGEMENT ON THE CORPORATE PROFITABILITY OF LISTED FIRMS: EVIDENCE FROM CREDIT RATINGS ON FTSE 100 COMPANIES

Underlying research tries to assess the impact of the credit rating monitoring on the working capital management and thus the impact on the overall profitability of the non-financial FTSE 100 firms. We used Return on Assets (ROA), Return on Equity (ROE), and Tobin Q as the profıtabiliy proxies. The first two measures represent the accounting firm's performance, while the latter is used as market profitability. The Cash Conversion Cycle (CCC) was used in this study to proxy working capital like many others in the preceding literature. Our findings suggest that aggressive working capital management is still the key to corporate profitability for non-financial FTSE100 firms when ROE is used. However, it supports the conservative working capital policy when Tobin Q is employed as a profitability measure. Nevertheless, when credit rating agency monitoring is in place, we can disclose a different story. Findings from this study using the System GMM methodology outline that when credit rating agencies' credit rating monitoring is in place, firms tend to spread the time for CCC. Relative to the previous statement, the firms that are not monitored are likely to shorten the CCC for attaining a higher profit level for the accounting measures of ROA and ROE. Nevertheless, we could not be able to find similar results with the Random effect (RE) models. We believe that the endogenous nature of the variables used in this study could trigger the insignificant impact of credit rating monitoring while using the RE models.

WORKING CAPITAL MANAGEMENT AND TECHNOLOGY INTENSITY

Several studies in literature presented that technology intensity firms, which are also assumed as R&D intensive ones, are holding more liquid assets, especially cash, compared to other firms. This study investigates possible differences, which are born by tendency of holding more liquid assets in technology intensive firms, in working capital management policies in emerging markets. 437 firms from 15 emerging countries have been analyzed by the use of Kuruskal Wallis and Mann Whitney U tests. The results revealed that technology intensive firms have been following different and more aggressive working capital management policies compared to less technology intensive ones.

Determinants of Working Capital Investment and Financing Policy: Evidence from Trading and Service Sector in Malaysia

Despite the importance of managing the working capital effectively, research on this area is still meagre. The company has an option to either adopt a conservative or aggressive working capital management policy. However, what drives them to either use conservative or aggressive working capital policy remains unclear. By segregating into conservative and aggressive working capital management, the study provides better insight as to the motives for companies to do so. Thus, this paper intends to examine the driving factors leading companies in the Trading and Services sector to adopt conservative and aggressive working capital policies. Using secondary data, the study runs panel regression models over seven years from 2001 until 2017 on the companies of the trading and service sector. The identified independent variables are age, free cash flow, growth rate, leverage, profitability and size. Empirically findings reveal that all the identified independent variables are the determinants for adopting conservative working capital investment policy (CWCIP). Only leverage appears to affect the working capital management policies and is negatively related. In essence, there appear to be no specific dominant factors affecting the companies to adopt conservative or aggressive working capital investment and financing policy. Furthermore, it seems that the trading and services companies practice a targeted conservative/aggressive investment and financing policies since the lagged dependent variables are positive and statistically significant. This paper extends the existing growing but dearth literature on the determinants of working capital investment and financing policies. In addition, the results may be of interest to managers who are interested to understand the rationale for adopting a specific working capital policy. Future research should investigate the impact of working capital investment and financing policies on company performance and firm values. In addition, more research could be done to examine whether the industry effect influences the adoption of working capital investment and financing policies taken.

Working capital management and CEO age

The existing literature provides strong evidence that working capital management affects a firm’s performance and value. In this paper, we examine how CEO age affects firms’ working capital decisions. Using a sample of 28,243 firm-year observations of U.S. firms from 1993 to 2018, we find that net operating working capital increases with CEO age, and firms with younger CEOs hold lower levels of inventory and higher levels of payables. The results are robust to various model specifications and variable definitions, providing strong and robust evidence that younger CEOs tend to implement more aggressive working capital management policies (Aggressive strategy hypothesis). The findings provide important insights to the board of directors, investors, and various monitoring groups.

INSTITUTIONAL SUSTAINABILITY OF ST. PAUL UNIVERSITY PHILIPPINES USING THE FOUR PERSPECTIVES OF THE BALANCED SCORECARD

The study aimed to assess the institutional sustainability of St. Paul University Philippines (SPUP) using the four perspectives of the balanced scorecard, namely: internal processes; learning and innovation, customer and financial perspectives. Furthermore, it considered the strengths, weaknesses, opportunities and threats of SPUP in the balanced scorecard inorder to come up with proposed strategies. This study employed the quantitative descriptive method to assess the University?s performance along the four perspectives of the balanced scorecard. The primary data were obtained using a survey questionnaire. The secondary data includes the financial statements, enrollment summary, faculty profile, faculty performance evaluation, number of employees, and number of resigned full-time faculty for academic year, 2015-2016 to 2017-2018. One hundred ninety-three (193) participants were obtained through stratified sampling to include office staff and maintenance personnel, faculty, lay administrators, students and parents. Data were treated using frequency counts, mean, and ratios. Results show that the scorecard of SPUP has positive performance in the internal processes, learning and growth, and customers? perspectives. It adopted aggressive working capital management in its financial perspective of the balanced scorecard brought by low liquidity and short-term solvency. It has less performance in the financial perspective of the Balanced Scorecard.

Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?

Abstract This paper analyses the link between working capital management and profitability of firms in the context of developing economies. A balanced panel consisting of eleven (11) manufacturing firms listed on the Ghana Stock Exchange covering the period of 2011-2017 was used. The link between working capital management and profitability was examined using dynamic panel regression (Arellano-Bond Estimation) technique. The study revealed that there is a significant positive linear relationship between working capital management and firms’ profitability. The findings also reveal the existence of a concave quadratic relationship between working capital management and firms’ profitability. There is an optimal level at which working capital management maximises firm’s profitability, therefore, managers need to ensure that they operate within the limits of the optimal level by implementing an effective and efficient working capital management policy. The study concludes that, the practice of an aggressive working capital management policy maximises a firm’s profitability.

The Impact of Aggressive Working Capital Management Policy on Firm’s Value: A Mediating Effect of Company’s Profitability

The study will examine the value of the firm and aggressive working capital management while considering the mediating effect of a firm's profitability. The study consist of 147 non-financial firms listed on the Pakistan Stock Exchange. The study period consists of years from 2009 to 2014. The finding reveals that aggressive working capital financing policy has a significant negative impact on profitability and firm value while aggressive investment policy discloses a significantly positive relationship with profitability. Profitability has a significant and positive impact on the firm's valuation therefore, profitability can mediate the relationship between the aggressive working capital management and the value of the firm. Therefore, we conclude that to enhance profitability through optimization of investment on current assets and by adding the proportion of long term financing in working capital. In the end, we have discussed some of our limitations and future research opportunities.

Working capital management and profitability of wine firms in France: an empirical analysis

We estimated the impact of cash conversion cycle (CCC) on the return on assets of wine firms in France over the 2003-2014 period. After controlling for factors such as size, growth, tangibility and leverage, we found that CCC had a negative impact on the profitability of French wine firms, suggesting an aggressive working capital management strategy. However, there was no optimal level of CCC allowing firms to maximise their profitability. On the other hand, French wine firms should grant a payment delay to their customers while reducing the delay to sell stocked wines. They should also lengthen the payment delay to their suppliers while considering potential borrowing cost and potential discounts for early payments. A robustness check on two different sub-periods shows that the recent global financial crisis had a significant impact on the relationship between working capital management and the profitability of wine firms in France.

Investment in working capital and financial constraints

PurposeThe purpose of this paper is to investigate the relationship between working capital management and corporate performance with financial constraints.Design/methodology/approachThis study uses large panel sample of Chinese listed firms over the period 2005–2015 using system generalized method of moments (GMM) estimator that controls unobserved heterogeneity of individual firms well and GMM methodology is robust to address endogeneity issues.FindingsEmpirical evidence finds inverted U-shaped relationship between working capital and corporate performance and exhibits similar evidence for financially constrained firms. Evidence shows impact of high sales and discounts on early payments at low level of working capital and dominance of opportunity cost and cost of external finance at high level of working capital. The findings of the results show that optimal working capital level of financially constrained firms is relatively lower due to high cost of external capital and debt rationing. The results also indicate that on average NET is significantly lower for firms with Tobin’s Q>1 than firms with Tobin’s Q=1, and suggest that aggressive working capital management is significantly and positively associated with higher corporate values.Originality/valueThis paper is among few that complement the existing literature by providing evidence that inverted U-shaped relationship between working capital management and corporate performance also exists in the context of Chinese listed non-financial firms. Exclusively, the relationship of working capital and corporate performance with linkage of financial constraints is scant in the context of Chinese listed non-financial firms.

Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?

This paper analyses the relationship between working capital management and profitability of firms in the context of developing economies. A balanced panel of 11 manufacturing companies quoted on the Ghana Stock Exchange was used. The study covered the period 2011 to 2017. The relationship between working capital management and profitability was tested using dynamic panel regression (Arellano-Bond Estimation) technique. The study revealed that there is a significant positive linear relationship between working capital management and firms’ profitability. The findings also reveal the existence of a concave quadratic relationship between working capital management and firms’ profitability. Hence, an optimal level which maximises the profitability of manufacturing firms in Ghana exists. This implies that, there is an optimal level at which working capital management maximises firm’s profitability, therefore, managers need to ensure that they operate within the limits of the optimal level by implementing an effective and efficient working capital management policy. Also, the practice of an aggressive working capital management policy maximises a firm’s profitability.

The Impact of Aggressive Working Capital Management Policy on Firm’s Value: A Mediating Effect of Company’s Profitability

This study investigates the mediating effect of the company’s profitability on the link between the aggressive working capital management policy and the value of the firm. The study has been conducted to 158 non-financial firms which have managerial ownership and listed on the Indonesia Stock Exchange from 2012 to 2015. Results of this research show that aggressive working capital management policy in the form of aggressive financing policy has a negative and significant impact on profitability and firm’s value, while, the aggressive investment policy has a positive and significant impact on profitability. However, the aggressive working capital management policy has no significant impact on the firm value. Profitability has a positive and significant effect on firm’s value, and profitability able to mediate aggressive working capital management policy on the firm’s value. Accordingly, to increase the company’s market value on the non-financial firms which have managerial ownership, the manager has to increase profitability by optimizing investment on current asset and by adding the proportion of long-term financing in working capital. Finally, this study has also discussed some limitations and future research.

Working capital structure and liquidity analysis : an empirical research on indian pharmaceutical industry

Liquidity plays a significant role in the successful functioning of a business firm. A firm should ensure that it does not suffer from lack-of or excess liquidity to meet its short-term compulsions. A study of liquidity is of major importance to both the internal and the external analysts because of its close relationship with dayto-day operations of a business. The crucial part in managing working capital is required maintaining its liquidity in day-today operation to ensure its smooth running and meets its obligation.Hence, it is of utmost important to keep a constant eye on liquidity position of the company as without it the company cannot survive. In this paper a comparative study on the liquidity position of five leading Indian pharmaceutical companies has been done to know the liquidity position of the companies. The study covers a period of 10 years viz, 2005-2006 to 2014-2015.For the purpose of investigation purely secondary data is used.The techniques of mean, standard deviation, coefficient of variation, ratio analysis, and Motaal’s ultimate rank test has been applied to analyze the data. It has been found that the liquidity position of small companies is better as compared to big ones. Moreover, low or negative working capital in some cases indicates the aggressive working capital management policy of the firms which implies minimal investment in current assets by the companies so as to derive a higher rate of return.But it has to be remembered that risk of default and bankruptcy increases when a firm adopts more aggressive working capital policies. One should remember that a negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis). In any other situation, it is a sign that a company may be facing bankruptcy or serious financial trouble.

The effect of aggressive working capital management policy on the performance of listed companies in Ghana

Working Capital Management is an important part of the financial management activities of companies as it tends to have effect on liquidity and overall profitability of organisations. It is argued in finance literature that an optimal working capital enhances profitability. Traditional studies on working capital management have tried to prove this by examining the effect of working capital management on the profitability of companies. We deviate from this norm by examining the effect of aggressiveness of working capital management policy on the profitability of Ghanaian registered companies. Using the financial statements of 21 Ghana Stock Exchange listed companies covering the period 2006 to 2011, we examined how their return on equity and return on assets were influenced by the aggressiveness of the working capital policy. Data obtained was analysed using regression analysis. Our empirical results show a negative relationship between working capital management policy and the measures of profitability adopted. We conclude that management cannot increase profit by adopting a very aggressive working capital management policy.

Working capital management and SMEs profitability: Portuguese evidence

Purpose – The purpose of this paper is to provide empirical evidence on the effects of working capital management on the profitability of small and medium-sized Portuguese firms. Design/methodology/approach – Panel regressions (fixed effects) and instrumental variables were used to model a sample of 6,063 Portuguese small and medium-sized firms (SMEs), covering the time period 2002-2009. Also, industry-demeaned values and industry-specific dummy variables allow for industry-specific effects robustness tests. Findings – Results indicate that a reduction in the inventories held and in the number of days that firms take to settle their commercial liabilities and to collect payments from its customers are associated to higher corporate profitability. Similar results are obtained when industry-specific effects are controlled, supporting the robustness of the previous analysis. The relevance of quadratic dependences of the profitability on some variables was also identified and suggests a decreasing trend of return on assets with increasing values of the working capital management characteristic variables. Practical implications – The practice of more aggressive working capital management policies increase firms’ profitability. Moreover, the importance of a good practice in working capital management is stressed by the evidence suggesting the existence of an optimal level for the working capital components. Originality/value – The consensus that SMEs play a crucial role in the development of the national economy, the lack of published industry wide studies of this type for the case of Portugal, justifies the importance of the present study.

Impact of Corporate Governance Practices on Working Capital Management Efficiency: A Structural Equation Modelling Approach

Working capital management and corporate governance are two important issues of overall firm management. The purpose of this study was to explore the impact of corporate governance practices on working capital management (WCM) efficiency of firms in a growing economy like India. We used data from 127 large Indian manufacturing sector firms and employed structural equation modelling to study this relationship. The period of the study is from 2004-2013 (10 years). We found that corporate governance indicators like board size, number of independent directors in a board, and percentage of independent members in an audit committee do significantly affect the efficiency of working capital management. We also found that an increase in independence of the board and audit committee compels the management to be conservative in managing short term capital, which in turn negatively affects WCM efficiency. It was observed that an increase in board size weakens control and allows the management to follow aggressive WCM strategies. The results also revealed that the size and independence of a board has more effect on WCM efficiency than the independence of the audit committee. The results of the study will help the practitioners, investors, and analysts to better understand the relation between effective corporate governance and short term funds management and enable them to take better and informed decisions.

Liquidity Management of Indian Cement Companies – A Comparative Study

Liquidity management is a concept that is gaining serious attention all over the world because of the current financial turmoil and the state of the world economy. The concern of business owners and managers all over the world is to devise a strategy which will help in maintaining liquidity as well as to increase profitability and shareholder's wealth. Liquidity is perceived as the debt paying ability of a going concern. It is the ability of a company to meet the short term obligations. Hence, it is of utmost important to keep a constant eye on liquidity position of the company as without it the company cannot survive. In this paper a comparative study on the liquidity position of five leading Indian cement companies has been done to know the liquidity position of the companies. The study covers a period of 10 years viz, 2000-2001 to 2009-2010. For the purpose of investigation purely secondary data is used. The techniques of mean, standard deviation, coefficient of variation, ratio analysis, and Motaal's ultimate rank test has been applied to analyse the data. It has been found that the liquidity position of small companies are better as compared to big ones and most interestingly the growth rate of current ratio, quick ratio and working capital to current assets of all the companies are negative which indicates an unsound liquidity position. Moreover, low or negative working capital in some cases indicates the aggressive working capital management policy of the firms which implies minimal investment in current assets by the companies so as to derive a higher rate of return. But it has to be remembered that risk of default and bankruptcy increases when a firm adopts more aggressive working capital policies. One should remember that a negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis). In any other situation, it is a sign that a company may be facing bankruptcy or serious financial trouble. In our case, Motaal's Ultimate Rank Test shows that the liquidity position of Shree Cements is sounder as compared to other companies.

CJ 88-27. Optimum design of linkages for the working device of loaders : By Yang Cenkang and Zhang Tiezhu (Jilin University of Technology, Changchun, China). Chinese J. Mech. Engng24, No. 3 (Sept. 1988), pp. 81–89

The existing literature provides strong evidence that working capital management affects a firm’s performance and value. In this paper, we examine how CEO age affects firms’ working capital decisions. Using a sample of 28,243 firm-year observations of U.S. firms from 1993 to 2018, we find that net operating working capital increases with CEO age, and firms with younger CEOs hold lower levels of inventory and higher levels of payables. The results are robust to various model specifications and variable definitions, providing strong and robust evidence that younger CEOs tend to implement more aggressive working capital management policies (Aggressive strategy hypothesis). The findings provide important insights to the board of directors, investors, and various monitoring groups.