Impact of Working Capital Management on Value Enhancing across Manufacturing Sector of Pakistan

Abstract

Working Capital Management (WCM) shows a significant role in manufacturing firm’s performance. Current study examines the effect of WCM on firm’s performance, stock performance, investment and value enhancing for the time period of 7 years from 2010 to 2016 in Pakistan. Panel Data Technique along with descriptive and correlation test have been employed for the sake of analysis. Moreover, Fixed Effect Model is also applied with strong evidence from Hausman and likelihood test. Stock performance is calculated by using market to book value, operating performance by return on assets. Excess return is calculated by subtracting the expected return (Capital Assets Pricing Model) from actual return (Share Prices return). Data has been gathered from annual reports, balance sheet analysis, yahoo finance, open door and from Pakistan Stock Exchange. Eventually, strong evidence has been found that WCM has significant impact on the firm, as well as on stock performance, investment and value enhancing of manufacturing sector of Pakistan. Moreover, result suggests that firms can enhance their value, increase stock and operating performance and maximize the investment value with the optimal level of WCM. So, present research concludes in the light of investigated results that WCM plays a vital role for organization performance.

Keywords: Working capital management, Value Enhancing, CAPM, stock performance, investment, excess return, Pakistan