The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian
Working capital management is part of the financial considerations that a finance manager needs to determine and plays an important role in determining the profitability of the firms. In view of its importance, this study aims to investigate on the effect of working capital management components and...
| _version_ | 1848772549154963456 |
|---|---|
| author | Sim, Linda Siew Kian |
| author_facet | Sim, Linda Siew Kian |
| author_sort | Sim, Linda Siew Kian |
| building | UM Research Repository |
| collection | Online Access |
| description | Working capital management is part of the financial considerations that a finance manager needs to determine and plays an important role in determining the profitability of the firms. In view of its importance, this study aims to investigate on the effect of working capital management components and working capital management policy towards profitability of firms in services and manufacturing sector in Malaysia for five years period from 2006 to 2010, which also coincides with the implementation of the Ninth Malaysia Plan and Third Industrial Master Plan. Further, the objective of this study is to examine whether there is any significant difference in profitability between
firms in services and manufacturing sector during the period of 2006 to 2010.
Panel data regression analysis using fixed effects estimation has been applied in this study based on secondary data collected from a sample of 75 trading/services firms and 143 industrial products firms listed in the Main Market of Bursa Malaysia for the period of 2006 to 2010, which represents services and manufacturing sector respectively.
The results of the study revealed that there is a significant negative relationship found on the number of days accounts receivable (ARD) and cash conversion cycle (CCC) with the profitability of firms in services sector, measured by gross operating profit (GOP). Meanwhile, a significant positive relationship is established between number of days inventories (INV) and profitability of the firms in services sector. In addition, the services firms are found to adopt an aggressive working capital investment policy (WCIP), which resulted in an increase in profitability. Meanwhile, there is no significant relationship found between working capital financing policy (WCFP) and
profitability of the firms. Overall, the results indicate that the profitability of the
firms in services sector can be enhanced by reducing the ARD and CCC, as well as increasing the INV level.
For manufacturing firms, it is revealed that there is a significant negative
relationship found between number of days accounts receivable (ARD) and
gross operating profit (GOP) of the firms, which means that the profitability of
the firms can be improved by reducing the ARD. The rest of the working
capital management components such as number of days inventories (INV),
number of days accounts payable (AP) and cash conversion cycle (CCC) do
not indicate a significant relationship with the gross operating profit (GOP) of
the firms. The manufacturing firms are found to adopt a conservative working
capital investment policy (WCIP) that resulted in an increase in profitability,
which is evidenced by the significant positive relationship reported between
WCIP and GOP during the period of 2006 to 2010. However, it is also found
that manufacturing firms adopts an aggressive working capital financing policy
(WCFP) that decreases the profitability of the firms in view that there is a
significant negative relationship found between WCFP and GOP of the firms.
Finally, based on the study conducted, it is also revealed that there is a
significant difference between the mean profitability of services and
manufacturing firms in Malaysia during year 2006 to 2010. |
| first_indexed | 2025-11-14T13:28:16Z |
| format | Thesis |
| id | um-3977 |
| institution | University Malaya |
| institution_category | Local University |
| last_indexed | 2025-11-14T13:28:16Z |
| publishDate | 2013 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | um-39772013-08-16T09:31:48Z The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian Sim, Linda Siew Kian HB Economic Theory HF Commerce Working capital management is part of the financial considerations that a finance manager needs to determine and plays an important role in determining the profitability of the firms. In view of its importance, this study aims to investigate on the effect of working capital management components and working capital management policy towards profitability of firms in services and manufacturing sector in Malaysia for five years period from 2006 to 2010, which also coincides with the implementation of the Ninth Malaysia Plan and Third Industrial Master Plan. Further, the objective of this study is to examine whether there is any significant difference in profitability between firms in services and manufacturing sector during the period of 2006 to 2010. Panel data regression analysis using fixed effects estimation has been applied in this study based on secondary data collected from a sample of 75 trading/services firms and 143 industrial products firms listed in the Main Market of Bursa Malaysia for the period of 2006 to 2010, which represents services and manufacturing sector respectively. The results of the study revealed that there is a significant negative relationship found on the number of days accounts receivable (ARD) and cash conversion cycle (CCC) with the profitability of firms in services sector, measured by gross operating profit (GOP). Meanwhile, a significant positive relationship is established between number of days inventories (INV) and profitability of the firms in services sector. In addition, the services firms are found to adopt an aggressive working capital investment policy (WCIP), which resulted in an increase in profitability. Meanwhile, there is no significant relationship found between working capital financing policy (WCFP) and profitability of the firms. Overall, the results indicate that the profitability of the firms in services sector can be enhanced by reducing the ARD and CCC, as well as increasing the INV level. For manufacturing firms, it is revealed that there is a significant negative relationship found between number of days accounts receivable (ARD) and gross operating profit (GOP) of the firms, which means that the profitability of the firms can be improved by reducing the ARD. The rest of the working capital management components such as number of days inventories (INV), number of days accounts payable (AP) and cash conversion cycle (CCC) do not indicate a significant relationship with the gross operating profit (GOP) of the firms. The manufacturing firms are found to adopt a conservative working capital investment policy (WCIP) that resulted in an increase in profitability, which is evidenced by the significant positive relationship reported between WCIP and GOP during the period of 2006 to 2010. However, it is also found that manufacturing firms adopts an aggressive working capital financing policy (WCFP) that decreases the profitability of the firms in view that there is a significant negative relationship found between WCFP and GOP of the firms. Finally, based on the study conducted, it is also revealed that there is a significant difference between the mean profitability of services and manufacturing firms in Malaysia during year 2006 to 2010. 2013 Thesis NonPeerReviewed application/pdf http://studentsrepo.um.edu.my/3977/1/Title_page_MBA_Research_Project.pdf application/pdf http://studentsrepo.um.edu.my/3977/2/Abstract%2C_Acknowledgements_and_Table_of_Contents_MBA_Research_Project.pdf application/pdf http://studentsrepo.um.edu.my/3977/3/Combined_Chapters_1_to_5_MBA_Research_Project.pdf http://pendeta.um.edu.my/client/default/search/results?qu=The+effect+of+working+capital+management+on+profitability+%3A+evidence+from+Malaysia+%2F+Linda+Sim+Siew+Kian&te= Sim, Linda Siew Kian (2013) The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian. Masters thesis, University of Malaya. http://studentsrepo.um.edu.my/3977/ |
| spellingShingle | HB Economic Theory HF Commerce Sim, Linda Siew Kian The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian |
| title | The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian |
| title_full | The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian |
| title_fullStr | The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian |
| title_full_unstemmed | The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian |
| title_short | The effect of working capital management on profitability : evidence from Malaysia / Linda Sim Siew Kian |
| title_sort | effect of working capital management on profitability : evidence from malaysia / linda sim siew kian |
| topic | HB Economic Theory HF Commerce |
| url | http://pendeta.um.edu.my/client/default/search/results?qu=The+effect+of+working+capital+management+on+profitability+%3A+evidence+from+Malaysia+%2F+Linda+Sim+Siew+Kian&te= http://pendeta.um.edu.my/client/default/search/results?qu=The+effect+of+working+capital+management+on+profitability+%3A+evidence+from+Malaysia+%2F+Linda+Sim+Siew+Kian&te= http://studentsrepo.um.edu.my/3977/1/Title_page_MBA_Research_Project.pdf http://studentsrepo.um.edu.my/3977/2/Abstract%2C_Acknowledgements_and_Table_of_Contents_MBA_Research_Project.pdf http://studentsrepo.um.edu.my/3977/3/Combined_Chapters_1_to_5_MBA_Research_Project.pdf |