Actors Influencing Corporate Working Capital Management: Evidence from an Emerging Economy

Topics: Inventory, Financial ratios, Regression analysis Pages: 27 (9405 words) Published: August 25, 2013
Journal of Contemporary Issues in Business Research FACTORS INFLUENCING CORPORATE WORKING CAPITAL MANAGEMENT: EVIDENCE FROM AN EMERGING ECONOMY KAMAL NASER1, RANA NUSEIBEH2 and AHMED AL-HADEYA3 ABSTRACT The main purpose of this study is to explore factors that influence working capital management by non-financial companies listed on Abu Dhabi Securities Exchange. The cash conversion cycle is used to proxy working capital management where short cycle implies effective management. Six factors frequently employed in previous research were used to explain variations in cash conversion cycle. The factors included industry type, sales growth, operating cash flows, return on equity, leverage and size. The latest annual reports for all non-financial companies listed on Abu Dhabi Securities Exchange and operate in the UAE were used to achieve the purpose of the study. The result of the analysis revealed that the effectiveness of working capital management of the companies covered in the study are influenced by sales growth, size and the level of corporate leverage. INTRODUCTION Working capital is a financial measure used to assess corporate liquidity. Reasonable working capital should be available to any firm to ensure that it has sufficient funds to cover its short-term obligations and to pay for future operating expenses. This guarantees the continuity of the firm’s operations. In fact, it is possible to see a profitable firm forced out of business due to inability to meet its short- term obligations when they fall due. It is therefore vital for any firm to manage its working capital successfully to ensure continuity. In the last few years, several studies have been undertaken to investigate factors affecting corporate working capital. Most of the studies examined the relationship between corporate working capital and profitability (see for example: Hayajneh and Yassine, 2011; Sabri, 2012; Gill et al., 2010; Dong and Su, 2010; Boisjoly, 2009; Falope and Ajilore, 2009; Mathuva, 2009; SEN and ORUÇ, 2009; Uyar, 2009; Samilogu and Demirgunes, 2008; Teruel and Solano, 2007; Raheman and Nasr, 2007; Lazaridis and Tryfonidis, 2006; Padachi, 2006; Eljelly, 2004; Deloof, 2003; Shin and Soenen, 1998; Jose et al., 1996). Other studies, attempted to establish a relationship between the efficiency of working capital management and a number of corporate attributes. In this respect, Charlton et al. (2002) examined the relationship between the industry type and liquidity of the corporation and working capital management. Jeng-Ren et al. (2006) studied the relationship between working capital management and a number of firm’s attributes such as size, industry type, leverage position and growth. Moss and Stine (1993) explored the relationship between firm’s working capital management and its size. It is evident that the focus of most of previous studies undertaken to examine factors that influence working capital was on profitability with few studies employing corporate attributes such as size, growth, leverage and industry type to explain level of efficiency of working capital management. In the current study, an attempt will be made to test all these 

Any views or opinions expressed in this manuscript are those of the authors and do not necessarily reflect the position of their employers, the editor or the publisher 1 Financial and Economic Advisor- Kuwait Fund. 2 Freelance Financial Analyst 3 Economic Advisor- Kuwait Fund 2 4 Freelance Financial Analyst 2011. Sales growth was calculated between the fiscal years 2010 and 2011 except Data covered the fiscal year 3 Economic Advisor- Kuwait Fund

Copyright © 2012 - Journal of Contemporary Issues in Business Research (JCIBR) All Rights Reserve Page No. 11

Journal of Contemporary Issues in Business Research factors. So far, no attempt has been made to examine the relationship between working capital management and firm’s attributes of companies listed on Abu Dhabi Securities Exchange (ADX)....
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