Unveiling The Effectiveness of Working Capital Management on Firm Performance: The Moderating Role of Firm Size

Asif Iqbal, Sheikh Nabeel Badar, Muhammad Arsalan, Mehboob Moosa and Muhammad Sikander Iqbal

Journal of Economic Impact, 2023, vol. 5, issue 2, 123-131

Abstract: Working capital management is critical to an organization's financial health and long-term performance. The relationship between working capital management and firm performance is uncertain, and research on firm size's moderating effect is scarce. The study investigates the impact of Working capital management (WCM) on firm performance and examines how the firm size moderates this relationship. Firms must efficiently manage working capital to stay financially stable and profitable. WCM procedures affect performance differently depending on the firm size. The research is conducted using the quantitative research design. For this research, we have gathered data from the annual reports of the firms belonging to the KMI-30 index listed at the Pakistan Stock Exchange. The period considered as the research sample is from 2012 to 2022, as it can provide a better analysis of different financial crises and long-term analysis. The quantile regression was used to evaluate the research objective since the data has the issue of heteroscedasticity and autocorrelation. We found that working capital significantly and positively influences the firm performance. However, the moderating role of firm size was found to be insignificant. The findings reveal that firms of all sizes should concentrate on ensuring good working capital management strategies to increase their performance. This requires monitoring and optimizing inventory, accounts receivable, and accounts payable while assuring sufficient liquidity to satisfy operating needs.

Keywords: Working capital management; Cash conversion cycle; Firm performance; Firm size (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:adx:journl:v:5:y:2023:i:2:p:123-131

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