Impact of Working Capital Management on Financial Charges: Empirical Evidence of Manufacturing Industry of Pakistan

Abstract

Conventionally, the researchers in finance realm have principally focused on the long-term financial decisions making, particularly capital structure, dividends, investments, and company valuation decisions. However, short-term assets and liabilities are important components of total assets and needs to be carefully analyzed. Working capital management plays a significant role in better performance of firms worldwide. This paper analyzes the impact of Financial Charges onto working capital management in the firms of Pakistan for the period 2006 to 2011. For this purpose, panel data of 8 Pharmaceutical manufacturing firms is used which are listed on Karachi Stock Exchange. The results indicate that the average collection period, inventory holding period, average payable period, cash conversion cycle, net trade cycle are not single-handedly significantly affecting the working capital of the firms but after taking the lag collective effect of all working capital resulted in significant. The useful policies must be devised for the individual components of working capital but the results lead us that an aggregative effect is expected in working capital management from the perspective of financial charges impact. Furthermore, for handsome reduction in the financial charges efficient management of all working capital components are vital & future study of the same dimension shall bring more insight reviews & make it more reliable.

Keywords: Working Capital Management, Financial Charges, Manufacturing Industry