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Working Capital Management and Its Association With Firm Performance and Value: Evidence From NZX Firms

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Dissertation(684.58 KB)

Date

2021

Authors

Supervisor

Kommunuri, John

Item type

Dissertation

Degree name

Master of Business

Journal Title

Journal ISSN

Volume Title

Publisher

Auckland University of Technology

Abstract

Objective – The purpose of this research is to assess whether working capital management (WCM) relates significantly with firm performance in non-financial firms listed on the New Zealand stock exchange. Design and methodology – The cash conversion cycle (CCC) is the proxy for WCM performance. Return on assets (ROA) and Tobin's Q (TQ) represent firm performance, namely profitability and firm value. The relationship between CCC, ROA, and TQ is investigated using panel data of a sample of 57 NZX non-financial listed firms for the period 2010 – 2019. Linear regression analysis is employed to assess the impact between variables. Findings – The study finds that CCC is strongly and negatively related to ROA, indicating that efficient WCM policies supported by shorter CCC enhance profitability in NZX firms. Moreover, the study evidences that CCC does not meaningfully influence TQ, implying that WCM policies do not impact firm value in the NZX business context. Outcome – The findings of this research will be helpful for financial decision-makers in determining short-term financial plans and strategies, which are primarily associated with the main working capital components of inventory, accounts receivables, and accounts payables. Originality/value – The importance of working capital is growing in the global business context as a substantial amount of capital is tied up in working capital investments that hinder long-term investments globally. Hence, this research urges academic works to examine different WCM approaches and their relationship with firm performance in different business settings. Moreover, no recent empirical studies are found in New Zealand business settings to assess the relationship between WCM and firm performance. This research fills that gap in the WCM literature.

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Keywords

Working capital management, Cash conversion cycle, Profitability, Firm value, Return on assets, Tobin's q, NZX firms

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Permanent link

https://hdl.handle.net/10292/14607

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Masters Dissertations