Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia

Financial crisis that hit the economic standing in 2008 has put the blame on the mismanagement of the working capital of firms. Empirical evidences highlight the importance of efficient and sound working capital management thus managers should therefore be alert and sensitive on the factors affectin...

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Main Authors:	Haron, Razali, Naji Mansour , Nomran
Format:	Article
Language:	English
Published:	Western Illinois University 2016
Subjects:	HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/50858/ http://irep.iium.edu.my/50858/ http://irep.iium.edu.my/50858/ http://irep.iium.edu.my/50858/1/BNote17RazaliHaronEACOMPLETED.pdf

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spelling	iium-508582016-08-07T08:07:27Z http://irep.iium.edu.my/50858/ Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia Haron, Razali Naji Mansour , Nomran HG4001 Financial management. Business finance. Corporation finance. Financial crisis that hit the economic standing in 2008 has put the blame on the mismanagement of the working capital of firms. Empirical evidences highlight the importance of efficient and sound working capital management thus managers should therefore be alert and sensitive on the factors affecting working capital management to improve firm’s performance in order to stay resilient. Nevertheless, limited studies have been done on this matter and is very much pronounced in the East Asian countries, despites the fact that these countries are the worst affected by the crisis. Malaysia is no exception in suffering from the turmoil thus it is paramount to examine the influencing factors of working capital management especially before, during and after a financial crisis in Malaysia. A panel regression is employed on a financial data of 57 Malaysian listed firms from 2002-2012. The study period is divided into three different scenarios, 2002-2006 (before the crisis), 2007-2008 (during the crisis) and 2009-2012 (after crisis). The cash conversion cycle is employed as a measurement of working capital management. The independent variables and their measurements are chosen based on previous studies, which are, profitability (net profit/total asset), debt (total debt/total asset), sales growth (salest–salest-1)/salest-1), free Cash flow (free cash flow/total asset), firm size (natural logarithm of sales) and liquidity (current asset/current liabilities). Several tests are carried out and the statistical procedure showed that the Random Effect model is the best model to explain the relationship between working capital management and its explanatory variables. A constant negative relationship is spotted between profitability and firm size with working capital management for all the three periods. The negative relationship between profitability and firm size with working capital management provide strong evidence on pecking order theory. Sales growth is negatively related to working capital management before and after the crisis periods. Debt appears to be mixed, with positive sign before the crisis but negative after the crisis. Free cash flow is positively related during the crisis period. No significant relationship however is detected on liquidity. The same variables (profitability, debt, sales growth and firm size) have significant relationships with working capital management before and after the crisis. This study has policy implication where managers can be sensitive on factors affecting working capital management and give particular attention on profitability, debt, sales growth and firm size in the management of their working capital regardless of the economic scenarios. Western Illinois University 2016-06-30 Article PeerReviewed application/pdf en http://irep.iium.edu.my/50858/1/BNote17RazaliHaronEACOMPLETED.pdf Haron, Razali and Naji Mansour , Nomran (2016) Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia. The Journal of Developing Areas, 50 (5). pp. 461-468. ISSN 0022-037X E-ISSN 1548-2278 http://muse.jhu.edu/article/619680/pdf 10.1353/jda.2016.0029
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG4001 Financial management. Business finance. Corporation finance. Haron, Razali Naji Mansour , Nomran Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia
description	Financial crisis that hit the economic standing in 2008 has put the blame on the mismanagement of the working capital of firms. Empirical evidences highlight the importance of efficient and sound working capital management thus managers should therefore be alert and sensitive on the factors affecting working capital management to improve firm’s performance in order to stay resilient. Nevertheless, limited studies have been done on this matter and is very much pronounced in the East Asian countries, despites the fact that these countries are the worst affected by the crisis. Malaysia is no exception in suffering from the turmoil thus it is paramount to examine the influencing factors of working capital management especially before, during and after a financial crisis in Malaysia. A panel regression is employed on a financial data of 57 Malaysian listed firms from 2002-2012. The study period is divided into three different scenarios, 2002-2006 (before the crisis), 2007-2008 (during the crisis) and 2009-2012 (after crisis). The cash conversion cycle is employed as a measurement of working capital management. The independent variables and their measurements are chosen based on previous studies, which are, profitability (net profit/total asset), debt (total debt/total asset), sales growth (salest–salest-1)/salest-1), free Cash flow (free cash flow/total asset), firm size (natural logarithm of sales) and liquidity (current asset/current liabilities). Several tests are carried out and the statistical procedure showed that the Random Effect model is the best model to explain the relationship between working capital management and its explanatory variables. A constant negative relationship is spotted between profitability and firm size with working capital management for all the three periods. The negative relationship between profitability and firm size with working capital management provide strong evidence on pecking order theory. Sales growth is negatively related to working capital management before and after the crisis periods. Debt appears to be mixed, with positive sign before the crisis but negative after the crisis. Free cash flow is positively related during the crisis period. No significant relationship however is detected on liquidity. The same variables (profitability, debt, sales growth and firm size) have significant relationships with working capital management before and after the crisis. This study has policy implication where managers can be sensitive on factors affecting working capital management and give particular attention on profitability, debt, sales growth and firm size in the management of their working capital regardless of the economic scenarios.
format	Article
author	Haron, Razali Naji Mansour , Nomran
author_facet	Haron, Razali Naji Mansour , Nomran
author_sort	Haron, Razali
title	Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia
title_short	Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia
title_full	Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia
title_fullStr	Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia
title_full_unstemmed	Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia
title_sort	determinants of working capital management before, during, and after the global financial crisis of 2008: evidence from malaysia
publisher	Western Illinois University
publishDate	2016
url	http://irep.iium.edu.my/50858/ http://irep.iium.edu.my/50858/ http://irep.iium.edu.my/50858/ http://irep.iium.edu.my/50858/1/BNote17RazaliHaronEACOMPLETED.pdf
first_indexed	2023-09-18T21:11:58Z
last_indexed	2023-09-18T21:11:58Z
_version_	1777411313066049536

Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia

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