Effect of Aggressive & Conservative Working Capital Management Policy on Performance of Scheduled Commercial Banks of Pakistan

Abstract

This study examine the impact of working capital management and its policies (investment and financing) on the performance of the scheduled commercial banks listed in PSE(Pakistan Stock Exchange) for the time period of 2009-2013. The performance of the banking sector have been determined with return on asset (ROA), return on equity (ROE) and cash to cash equivalent (CCE). Working capital management has been measured with cash conversion cycle (CCC), current liabilities to total asset (CL/TA) and current asset to total asset (CA/TA). Financial leverage and size of the bank have been used as control variables. The results revealed from the selected 30 commercial banks as sample that there is a negative relationship between CA/TA, CL/TA and CCC with ROA and ROE. There is a significant positive relationship between CA/TA and CCE, however, its relativity with CL/TA and CCC is insignificant. The control variables show significant positive relationships with ROA and ROE and significant negative relationships with CCE. Whereas leverage shows insignificant relationship with ROA, ROE and CCE.

Keywords: Working Capital Management, scheduled commercial banks, aggressive working capital policy, conservative working capital policy.