Determinants of working capital management efficiency: Case study of Pakistani automotive and engineering firms listed in Karachi Stock Exchange

Abstract

This Study is conducted to determine the determinants of working capital management efficiency of automotive and engineering firms listed in Karachi Stock Exchange of Pakistan. Cash Conversion Cycle, Days sales Inventory, Days Payable Outstanding and Days Sales Outstanding are the explanatory variables. Whereas the descriptive statistics, Pearson’s Bivariate correlation analysis and ordinary pooled least square with fixed effect model are applied to investigate the significance of panel data set. It is quarterly based and secondary data in nature that comprises of 9 firms for 5 years. The observations are taken from financial years 2006 to 2010 of the listed firms. In spite of these a questionnaire is also filled by the firm’s financial representatives during the research on Enterprise Resource Planning (ERP) which shows positive results or the efficiency of working capital management. It is concluded that to keep the working capital efficient cash conversion cycle must be shortest. For this there is need of tight collection policy and liberal payment policy while the inventory management must be efficient by reviewing the inventory policy.