Document Type : Original Article
Authors
1 PhD student in accounting, Alzahra University and a lecturer at Payame Noor University
2 Associate professor at Alzahra University, corresponding author
Abstract
Working capital should be available to any company to have the sufficient funds to cover short-term commitments and operating costs in the future. This guarantees the continuity of the company’s activities. Given the significance of the role of working capital management (WCM) in the companies, the study analyzed the content of texts and studies done in this field, presented three main hypotheses and examined the effect of most of the variables affecting WCM (both external and internal factors of the company), as well as the consequences of WCM in 161 companies listed in Tehran Stock Exchange (TSE) during a seven-year period from 2011 to 2017. The purpose of the study was to determine the most important factor affecting WCM and its consequences.
The hypotheses were tested using multivariate regression and Granger causality test. The hypothesis testing indicated that extra-organizational factors such as gross domestic product (GDP), inflation rate and exchange rate have the greatest effect on WCM. Moreover, hypothesis testing indicated that some intra-organizational factors, such as current ratio, capital expenditures, financial leverage, return on assets, operating cycle, operating profit return, institutional shareholders ownership-percentage, and independence of board of directors affect WCM. Finally, hypothesis testing showed that optimal capital management improves the firms’ performance.
Keywords
Ali, S., & Khan, M. (2011). Searching for Internal and External Factors that
Determine Working Capital Management for Manufacturing Firms in Pakistan.
African Journal of Business Management, 5(7), 2942-2949.
Alipour, H.R., Nami, M. (2017), Factors Affecting WCM, Case Study of Listed
Companies in the Stock Exchange, 9th International Conference on Economics and
Management.
Anvari Rostami; A. A.; Sajadpoor , R. & yaballuei, M. (2014). An Investigation of
the Determinants of Working Capital Management in Tehran Stock Exchange (TSE).
Journal of Financial Accounting Research, 6(1), 15-26. [In Persian]
Arunkumar.O.N. and T. Radharamanan,(2013), Factors affecting working capital
management of Indian manufacturing firms, Int. J. Managerial and Financial
Accounting, Vol. 5, No. 4,
Atseye, Fidel Anake, Ugwu J.K. Takon S.M. .(2015), Determinants Of Working
Capital Management, Theoretical Review, International Journal of Economics,
Commerce and Management, Vol. III, Issue 2.
Awan, A.GH., Shahid P., Hassan J., Ahmad W., (2014), Impact Of Working
Capital Management On Profatibility Of Cement Sector In Pakistan, International
Journal of Business and Management Review, Vol.2, No.4, pp.1-20 .
Azami,Z.,Jeyhoon TABAR F.,(2016), Investigating the Factors Affecting Working
Capital of Companies Using the Generalized Method of Moments, Bulletin de la
Société Royale des Sciences de Liège, Vol. 85, p. 1402 - 1415 1402.
Azeem,M.M. & Akin Marsap,(2015), Determinant Factors and Working Capital
Requirement, International Journal of Economics and Finance; Vol. 7, No. 2;
Bahar. Ali, Said .Shah (2017), The Impact Of Corporate Governance On Working
Capital Management Efficincy, City University Research Journal ,Volume 07
Number 02 July 2017 PP 272-284
Bahar Moghaddam, M., Yazdi, Z., Yazdi, S. (2011). The Effects of WCM on
Profitability of Companies Accepted in Tehran Stock Exchange, Management
Accounting Magazine, 10, pp. 63-75. [In Persian]
Caballero, B.S., Garcia-Teruel, P. J., & Martinez-Solano, P. (2009). How do
market imperfections affect working capital management?
Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2012). How does
working capital management affect the profitability of Spanish SMEs?. Small
Business Economics, 3: 1-13
Caballero, S. B., Teruel, P. G., & Solano, P. M. (2014). Working capital
management, corporate performance and financial constraints. Journal of Business
Research, 67(3): 332-338
Dastgir, M., Honarmand, M. (2014). Investigating the Effect of Corporate
Governance Mechanisms on the Efficiency of WCM, Journal of Science. Management
Accounting Research, seventh year, number twenty-second, pp. 69-88. [In Persian]
Deloof, M and Jeger, M. (1996). Trade Credit, Product Quoting and Intragroup
Trade: Some European Evidence. Financial Management 25(3), 945-968.
56 Iranian Journal of Finance
Deloof, M. (2003). Does Working Capital Management Affect Profitability of
Belgian Firm? Journal of Business, Finance and Accounting, 30, (3&4): 573- 587.
Dulou, M., Bastami, F., Tehrani, M.H. (2017). WCM and Profitability in the
Economic Period, Monetary Economic Research, Financial Times New Year, Year 24,
No. 14. [In Persian]
Elbadry, Ahmed, (2018), The Determinants of Working Capital Management in the
Egyptian SMEs, Accounting and Finance Research Vol. 7, No. 2
Fatimatuzzahra.M,Retno Kusumastuti (2016), The Determinant of Working Capital
Management of Manufacturing Companies, MIMBAR, Vol. 32, No. 2nd, pp. 276-281
Gill, A., Biger, N., & Mathur, N. (2010). The Relationship Between Working
Capital Management And Profitability: Evidence From The United States. Business
and Economics Journal, 1–9. http://astonjournals.com/manuscripts /Vol2010/BEJ-10
_Vol2010.pdf
Gill, A. (2011). Factors That Influence Working Capital Reqirment in Canada.
Economics and Finance Review, 1 (3), 30-40.
Hailu A.Y., Venkateswarlu P.,(2016), Effect of working capital management on
firms profitability evidence from manufacturing companies in eastern, Ethiopia,
International Journal of Applied Research ; 2(1): 643-647
Hampton John; Warren (2004), Translation and Compilation of Hamid Reza Vakili
Fard and Masoud Vakili Fard, Forest Publishing, Sixth Edition. [In Persian]
Hasanpor, A., Mohammad Zadeh, M., Mansoori, E., (2017), The Effective Factors
on Working Capital Management of Accepted Companies in Tehran Stock Market
(Case Study: Cement Industry), Palma Journal , V.16, I.3, 135-143.
Iskandarnejad,S., Hassanzadeh Baradaran,R., Taheri,H.,(2018), The impact of
working capital management on Listed companies profitability in business cycles
based on the output gap, Journal of Asset Management and Financing. [In Persian]
Kamal Naser, Rana Nuseibeh, Ahmed Al-hadeya, (2013), Factors Influencing
Corporate Working Capital Management: Evidence From An Emerging Economy,
Journal of Contemporary Issues in Business Research, Vol. 2, No. 1, 11-30.
Khan, N., Akbar, M., & Akbar, A. (2016). Does an optimal working capital exist?
The role of financial constraints. Research Journal of Finance and Accounting, 7(9):
131-136
Kienschnick, R. LaPlante, M. & Moussawi, R. (2006). Corporate Working Capital
Management: Determinants and Consequences. [Online] Available:
http://www.fma.org/SLC/Papers/cwcmf_ fma.pdf
Mohamad, Nor Edi Azhar and Elias, Siti Balqis (2013) An Assesment on
Determinant of Working Capital Management from Malaysian Public Listed
Companies. International Journal of Academic Research Science, Vol. 3, No. 4. in
Accounting, Finance, and Management.
Mohammadi, Mohammad (2009), Effect of Working Capital Management on
Profitability in Companies Acquired in Tehran Stock Exchange, Management
Quarterly, No. 14, 91-80. [In Persian]
Moradi, M.A., Najjar, M., Izadpour, M. (2015), Investigating the Relationship
Between WCM and Performance Measures Based on the Value of Companies
Explaining Factors and Consequences of Working Capital Management Using Content 57
Analysis Approach
Acquired in Tehran Stock Exchange, Journal of Management and Finance, Third
Year, Second Issue. [In Persian]
Nazir, M., & Afza, T. (2009). Impact of Aggressive Working Capital Management
Policy on Firms‟ Profitability. The IUP Journal of Applied Finance, 25(8), 19-30.
Onaolapo, A. A, Kajola, S.O. , (2015), What are the Determinants of Working
Capital Requirements of Nigerian Firms?, Research Journal of Finance and
Accounting, Vol.6, No.6,
Oseifuah, Emmanuel, (2016), Determinants of Working Capital Requirements:
Evidence from Selected Non-financial Firms Listed on the Johannesburg Securities
Exchange, Journal of Accounting and Management, vo.6,no.1.
Qalibaf Asl, Hassan; Shahram Sobolian, Mousavi Mosque, (2014), Advanced
Financial Management, Al-Zahra University Press, First Edition. [In Persian]
Rasyid.R., Syukri Lukman, Tafdil Husni, Adrimas(2018), The Impact of
Aggressive Working Capital Management Policy on Firm‟s Value: A Mediating
Effect of Company‟s Profitability, Journal of Business and Management Sciences,
Vol. 6, No. 1, 16-21
Reza Zadeh, J., Heidrian, J. (2010). The Effect of WCM on Profitability of
Iranian Companies, Accounting and Audit Research, Volume 2, Issue 7, Pages 20-33.
[In Persian]
Russo, F.T.Batista(2013), The Working Capital Management: The Determinants
And The Effect On Profitability, Project submitted as partial requirement for the
conferral of Master in Finance.
Sagner, J.S. (2014), Working Capital Management: Applications and Cases, John
Wiley & Sons, Hoboken, NJ.
Santanu, K. & Santi, G. (2004). Working Capital Management Efficiency. The
Management Accounting, 363-367.
Shah, Said, (2016), Factors Affecting Working Capital Management Practices and
Determining Firms‟ Performance: A Comparative Analysis of Listed Companies in
Pakistan, A research thesis submitted to the Department of Management & Social
Sciences, Capital University of Science and Technology, Islamabad in partial
fulfillment of the requirements for the degree of Doceor Of Philosophy In
Management Sciences.
Sin Huei Ng., Chen Ye, Tze San Ong, Boon Heng Teh,(2017), The Impact of
Working Capital Management on Firm‟s Profitability: Evidence from Malaysian
Listed Manufacturing Firms, International Journal of Economics and Financial Issues,
7(3), 662-670.
Smith, J. K. (1987). Trade Credit and Informational Asymmetry. Journal of
Finance, 43(4): 863–872.
Smith K. (1980). “Profitability versus Liquidity Tradeoffs in Working Capital
Management”, in Readings on the Management of Working Capital. Ed. K. V. Smith,
St. Paul, West Publishing Company, pp. 549-562
Soykan, M. R., & ulucak, R. (2016). Is There a Non-linear Relationship between
Net Trade Cycle and Corporate Performance in Turkey?. International Business
Research, 6, 95-101.
58 Iranian Journal of Finance
Talonpoika A.M., Timo Kärri, Miia Pirttilä and Sari Monto,(2016), Defined
strategies for financial working capital management, International Journal of
Managerial Finance, Vol. 12 No. 3,pp. 277-294.
Temtime Z.T., (2016), Relationship between Working Capital Management,
Policies, and Profitability of Small Manufacturing Firms, Walden Dissertations and
Doctoral Studies Collection, Walden University,
http://scholarworks.waldenu.edu/dissertations
Vaez, S.A., Galmir, M.H., Ghanvaei, N., Rahmani, F. (2014), A Study on the
Relationship between the Ownership Structure and the Board's Structure and the
Efficiency of WCM, Journal of Asset Management and Finance, Year II, No. 4, Pages
113-128. . [In Persian]
Vaez, S.A., Kalhori, Gholmir, M.H., Shakeri, F. (2013), Factors Affecting the
WCM of Tehran Stock Exchange Companies, Journal of Financial Accounting, Vol.
5, No. 19, pp. 46-68. [In Persian]
Viskari, S., Pirttila, M. and Karri, T. (2011) „Improving profitability by managing
working capital in the value chain of pulp and paper industry‟, International Journal of
Managerial and Financial Accounting (IJMFA), Vol. 3, No. 4, pp.348–366.
Wasiuzzaman, S. & Arumugam, V.C. (2013). Determinants of Working Capital
Investment: A Study of Malaysian Public Listed Firms. Australasian Accounting
Business and Finance Journal, 7 (2): 49- 70.
Zariyawati, M. A., Annuar, M. N., Taufiq, H., & Abdul Rahim, A. S. (2009).
Working capital management and corporate performance: Case of Malaysia. Journal
of Modern Accounting and Auditing, 5(11), 47–54.
Determine Working Capital Management for Manufacturing Firms in Pakistan.
African Journal of Business Management, 5(7), 2942-2949.
Alipour, H.R., Nami, M. (2017), Factors Affecting WCM, Case Study of Listed
Companies in the Stock Exchange, 9th International Conference on Economics and
Management.
Anvari Rostami; A. A.; Sajadpoor , R. & yaballuei, M. (2014). An Investigation of
the Determinants of Working Capital Management in Tehran Stock Exchange (TSE).
Journal of Financial Accounting Research, 6(1), 15-26. [In Persian]
Arunkumar.O.N. and T. Radharamanan,(2013), Factors affecting working capital
management of Indian manufacturing firms, Int. J. Managerial and Financial
Accounting, Vol. 5, No. 4,
Atseye, Fidel Anake, Ugwu J.K. Takon S.M. .(2015), Determinants Of Working
Capital Management, Theoretical Review, International Journal of Economics,
Commerce and Management, Vol. III, Issue 2.
Awan, A.GH., Shahid P., Hassan J., Ahmad W., (2014), Impact Of Working
Capital Management On Profatibility Of Cement Sector In Pakistan, International
Journal of Business and Management Review, Vol.2, No.4, pp.1-20 .
Azami,Z.,Jeyhoon TABAR F.,(2016), Investigating the Factors Affecting Working
Capital of Companies Using the Generalized Method of Moments, Bulletin de la
Société Royale des Sciences de Liège, Vol. 85, p. 1402 - 1415 1402.
Azeem,M.M. & Akin Marsap,(2015), Determinant Factors and Working Capital
Requirement, International Journal of Economics and Finance; Vol. 7, No. 2;
Bahar. Ali, Said .Shah (2017), The Impact Of Corporate Governance On Working
Capital Management Efficincy, City University Research Journal ,Volume 07
Number 02 July 2017 PP 272-284
Bahar Moghaddam, M., Yazdi, Z., Yazdi, S. (2011). The Effects of WCM on
Profitability of Companies Accepted in Tehran Stock Exchange, Management
Accounting Magazine, 10, pp. 63-75. [In Persian]
Caballero, B.S., Garcia-Teruel, P. J., & Martinez-Solano, P. (2009). How do
market imperfections affect working capital management?
Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2012). How does
working capital management affect the profitability of Spanish SMEs?. Small
Business Economics, 3: 1-13
Caballero, S. B., Teruel, P. G., & Solano, P. M. (2014). Working capital
management, corporate performance and financial constraints. Journal of Business
Research, 67(3): 332-338
Dastgir, M., Honarmand, M. (2014). Investigating the Effect of Corporate
Governance Mechanisms on the Efficiency of WCM, Journal of Science. Management
Accounting Research, seventh year, number twenty-second, pp. 69-88. [In Persian]
Deloof, M and Jeger, M. (1996). Trade Credit, Product Quoting and Intragroup
Trade: Some European Evidence. Financial Management 25(3), 945-968.
56 Iranian Journal of Finance
Deloof, M. (2003). Does Working Capital Management Affect Profitability of
Belgian Firm? Journal of Business, Finance and Accounting, 30, (3&4): 573- 587.
Dulou, M., Bastami, F., Tehrani, M.H. (2017). WCM and Profitability in the
Economic Period, Monetary Economic Research, Financial Times New Year, Year 24,
No. 14. [In Persian]
Elbadry, Ahmed, (2018), The Determinants of Working Capital Management in the
Egyptian SMEs, Accounting and Finance Research Vol. 7, No. 2
Fatimatuzzahra.M,Retno Kusumastuti (2016), The Determinant of Working Capital
Management of Manufacturing Companies, MIMBAR, Vol. 32, No. 2nd, pp. 276-281
Gill, A., Biger, N., & Mathur, N. (2010). The Relationship Between Working
Capital Management And Profitability: Evidence From The United States. Business
and Economics Journal, 1–9. http://astonjournals.com/manuscripts /Vol2010/BEJ-10
_Vol2010.pdf
Gill, A. (2011). Factors That Influence Working Capital Reqirment in Canada.
Economics and Finance Review, 1 (3), 30-40.
Hailu A.Y., Venkateswarlu P.,(2016), Effect of working capital management on
firms profitability evidence from manufacturing companies in eastern, Ethiopia,
International Journal of Applied Research ; 2(1): 643-647
Hampton John; Warren (2004), Translation and Compilation of Hamid Reza Vakili
Fard and Masoud Vakili Fard, Forest Publishing, Sixth Edition. [In Persian]
Hasanpor, A., Mohammad Zadeh, M., Mansoori, E., (2017), The Effective Factors
on Working Capital Management of Accepted Companies in Tehran Stock Market
(Case Study: Cement Industry), Palma Journal , V.16, I.3, 135-143.
Iskandarnejad,S., Hassanzadeh Baradaran,R., Taheri,H.,(2018), The impact of
working capital management on Listed companies profitability in business cycles
based on the output gap, Journal of Asset Management and Financing. [In Persian]
Kamal Naser, Rana Nuseibeh, Ahmed Al-hadeya, (2013), Factors Influencing
Corporate Working Capital Management: Evidence From An Emerging Economy,
Journal of Contemporary Issues in Business Research, Vol. 2, No. 1, 11-30.
Khan, N., Akbar, M., & Akbar, A. (2016). Does an optimal working capital exist?
The role of financial constraints. Research Journal of Finance and Accounting, 7(9):
131-136
Kienschnick, R. LaPlante, M. & Moussawi, R. (2006). Corporate Working Capital
Management: Determinants and Consequences. [Online] Available:
http://www.fma.org/SLC/Papers/cwcmf_ fma.pdf
Mohamad, Nor Edi Azhar and Elias, Siti Balqis (2013) An Assesment on
Determinant of Working Capital Management from Malaysian Public Listed
Companies. International Journal of Academic Research Science, Vol. 3, No. 4. in
Accounting, Finance, and Management.
Mohammadi, Mohammad (2009), Effect of Working Capital Management on
Profitability in Companies Acquired in Tehran Stock Exchange, Management
Quarterly, No. 14, 91-80. [In Persian]
Moradi, M.A., Najjar, M., Izadpour, M. (2015), Investigating the Relationship
Between WCM and Performance Measures Based on the Value of Companies
Explaining Factors and Consequences of Working Capital Management Using Content 57
Analysis Approach
Acquired in Tehran Stock Exchange, Journal of Management and Finance, Third
Year, Second Issue. [In Persian]
Nazir, M., & Afza, T. (2009). Impact of Aggressive Working Capital Management
Policy on Firms‟ Profitability. The IUP Journal of Applied Finance, 25(8), 19-30.
Onaolapo, A. A, Kajola, S.O. , (2015), What are the Determinants of Working
Capital Requirements of Nigerian Firms?, Research Journal of Finance and
Accounting, Vol.6, No.6,
Oseifuah, Emmanuel, (2016), Determinants of Working Capital Requirements:
Evidence from Selected Non-financial Firms Listed on the Johannesburg Securities
Exchange, Journal of Accounting and Management, vo.6,no.1.
Qalibaf Asl, Hassan; Shahram Sobolian, Mousavi Mosque, (2014), Advanced
Financial Management, Al-Zahra University Press, First Edition. [In Persian]
Rasyid.R., Syukri Lukman, Tafdil Husni, Adrimas(2018), The Impact of
Aggressive Working Capital Management Policy on Firm‟s Value: A Mediating
Effect of Company‟s Profitability, Journal of Business and Management Sciences,
Vol. 6, No. 1, 16-21
Reza Zadeh, J., Heidrian, J. (2010). The Effect of WCM on Profitability of
Iranian Companies, Accounting and Audit Research, Volume 2, Issue 7, Pages 20-33.
[In Persian]
Russo, F.T.Batista(2013), The Working Capital Management: The Determinants
And The Effect On Profitability, Project submitted as partial requirement for the
conferral of Master in Finance.
Sagner, J.S. (2014), Working Capital Management: Applications and Cases, John
Wiley & Sons, Hoboken, NJ.
Santanu, K. & Santi, G. (2004). Working Capital Management Efficiency. The
Management Accounting, 363-367.
Shah, Said, (2016), Factors Affecting Working Capital Management Practices and
Determining Firms‟ Performance: A Comparative Analysis of Listed Companies in
Pakistan, A research thesis submitted to the Department of Management & Social
Sciences, Capital University of Science and Technology, Islamabad in partial
fulfillment of the requirements for the degree of Doceor Of Philosophy In
Management Sciences.
Sin Huei Ng., Chen Ye, Tze San Ong, Boon Heng Teh,(2017), The Impact of
Working Capital Management on Firm‟s Profitability: Evidence from Malaysian
Listed Manufacturing Firms, International Journal of Economics and Financial Issues,
7(3), 662-670.
Smith, J. K. (1987). Trade Credit and Informational Asymmetry. Journal of
Finance, 43(4): 863–872.
Smith K. (1980). “Profitability versus Liquidity Tradeoffs in Working Capital
Management”, in Readings on the Management of Working Capital. Ed. K. V. Smith,
St. Paul, West Publishing Company, pp. 549-562
Soykan, M. R., & ulucak, R. (2016). Is There a Non-linear Relationship between
Net Trade Cycle and Corporate Performance in Turkey?. International Business
Research, 6, 95-101.
58 Iranian Journal of Finance
Talonpoika A.M., Timo Kärri, Miia Pirttilä and Sari Monto,(2016), Defined
strategies for financial working capital management, International Journal of
Managerial Finance, Vol. 12 No. 3,pp. 277-294.
Temtime Z.T., (2016), Relationship between Working Capital Management,
Policies, and Profitability of Small Manufacturing Firms, Walden Dissertations and
Doctoral Studies Collection, Walden University,
http://scholarworks.waldenu.edu/dissertations
Vaez, S.A., Galmir, M.H., Ghanvaei, N., Rahmani, F. (2014), A Study on the
Relationship between the Ownership Structure and the Board's Structure and the
Efficiency of WCM, Journal of Asset Management and Finance, Year II, No. 4, Pages
113-128. . [In Persian]
Vaez, S.A., Kalhori, Gholmir, M.H., Shakeri, F. (2013), Factors Affecting the
WCM of Tehran Stock Exchange Companies, Journal of Financial Accounting, Vol.
5, No. 19, pp. 46-68. [In Persian]
Viskari, S., Pirttila, M. and Karri, T. (2011) „Improving profitability by managing
working capital in the value chain of pulp and paper industry‟, International Journal of
Managerial and Financial Accounting (IJMFA), Vol. 3, No. 4, pp.348–366.
Wasiuzzaman, S. & Arumugam, V.C. (2013). Determinants of Working Capital
Investment: A Study of Malaysian Public Listed Firms. Australasian Accounting
Business and Finance Journal, 7 (2): 49- 70.
Zariyawati, M. A., Annuar, M. N., Taufiq, H., & Abdul Rahim, A. S. (2009).
Working capital management and corporate performance: Case of Malaysia. Journal
of Modern Accounting and Auditing, 5(11), 47–54.
)