Working Capital Management and Corporate Internal Growth Performance: Evidence of Listed Non-Financial Companies in Pakistan

Abstract

Purpose: The main objective of this research is to determine the impact of working capital management (WCM) on the growth of manufacturing firms in Pakistan. Methodology: The dependent variable of Internal Growth Rate (IGR), is affected by independent variables of Days Sales Outstanding (DSO), Inventory Turnover (ITO), and Payables Deferral Period (PDP). Based on 5 years of (2016-2020) data of 174 non-financial listed companies taken from the Pakistan Stock Exchange (PSX), regression, descriptive and analytical analysis ascertained that the Working Capital Management (WCM) of a firm is comprehensively measured by the tool of Cash Conversion Cycle (CCC). Findings: The results showed that WCM played an important role in the value creation of the overall business as long as DSO and ITO have a negative impact on the IGR performance of the firm, and for the better performance of IGR, firms needed to keep DSO and ITO at a minimum level. Research limitations/implications: Due to the type of research that has been conducted, other sectors of the industry, such as service, finance, and food, have been left out, and focus has only been made on the manufacturing side. The findings of this study may not be completely applicable to all listed manufacturing firms due to the difference in size and environment that could also affect firms’ growth. Originality/value: This research provides a clear understanding and comprehension of the contribution of working capital management to profitability, and internal, and sustainable growth.

Keywords

• Internal Growth Rate , Days Sales Outstanding , Inventory Turnover , Payables Deferral Period, Working Capital Management