Browse > Article
http://dx.doi.org/10.13106/jafeb.2021.vol8.no6.0713

The Relationship between Working Capital Management and Financial Performance: Evidence from Jordan  

ALMOMANI, Tareq Mohammad (Accounting Department, Jadara University)
ALMOMANI, Mohammad Abdullah (Accounting Department, Jadara University)
OBEIDAT, Mohammed Ibrahim (Accounting Department, Jadara University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.6, 2021 , pp. 713-720 More about this Journal
Abstract
Efficient working capital management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet short-term obligations and at the same time avoiding excessive investment in current assets. The study's objective is to investigate the moderating effect of working capital investment and financing policy on the relationship between working capital management efficiency and the financial performance of industrial firms listed on the Amman Stock Exchange (ASE). To achieve the objective of the study, this study used time series and data covering the period 2010-2018. A sample of 42 manufacturing firms listed on the ASE was used in the analysis and hypotheses testing. Return on assets is used to measure financial performance, while inventory turnover, receivables turnover, current assets turnover, working capital turnover, and inventory-to-sales ratio are used to measure the working capital management efficiency. This study involved two hypotheses, and both hypotheses were tested to emphasize a 95 percent level of confidence. For data analysis, we used descriptive statistics and the multiple linear regression method was used for hypotheses testing. The study finds that inventory turnover, receivables turnover, current assets turnover, and working capital turnover affect the financial performance of the manufacturing firms, whereas no substantial differences were found between the direct or the moderating models in estimating financial performance.
Keywords
Working Capital; Financial Performance; Industrial Companies; Amman Stock Exchange; Return on Assets;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Jana, D. (2018). Impact of working capital management on profitability of the selected listed FMCG companies in India. International Research Journal of Business Studies, 11(1), 21-30. https://doi.org/10.21632/IRJBS.11.1.21-30   DOI
2 Al-Shubiri, F. N. (2011). The effect of working capital practices on risk management: Evidence from Jordan. Global Journal of Business Research, 5(1), 39-54. ftp://ftp.repec.org/opt/ReDIF/RePEc/ibf/gjbres/gjbr-v5n1-2011/GJBR-V5N1-2011-4.pdf
3 Nazir, M. S., & Afza, T. (2009). Impact of aggressive working capital management policy on firms' profitability. IUP Journal of Applied Finance, 15(8), 19. https://lahore.comsats.edu.pk/Papers/Abstracts/146-8588087906194227058.pdf
4 Al-Zubaidi, H. (2008). Advanced financial management. Oman: Al-Warraq Foundation - Publishing and Distribution.
5 Abdul Raheman, A., & Abdul Qayum, B. (2010). Working capital management and corporate performance of manufacturing sector in Pakistan. International Journal of Finance and Economics, 47, 153-163. https://doi.org/10.24052/JBRMR/V13IS03/ART-07
6 Roni, H., Djazuli, A., & Djumahir, D. (2018). The effect of working capital management on profitability of state-owned enterprise in processing industry sector. Jurnal Aplikasi Manajemen, 16(2), 293-299. https://jurnaljam.ub.ac.id/index.php/jam/article/view/1284   DOI
7 Ahmad, N., Malik, S., Nadeem, M., & Naqvi, H. (2014). Impact of working capital on corporate performance: A case study from cement, chemical, and engineering sectors of Pakistan. Arabian Journal of Business and Management Review, 3(7), 12-22. https://www.arabianjbmr.com/pdfs/OM_VOL_3_(7)/2.pdf
8 Al-Amiri, M. A. (2013). Financial management. Oman: Al-Manhaj Publishing House and Distribution.
9 Al-Momani, M. A., & Al-Momani, T. M. (2018). The impact efficiency of using assets to enhance earnings quality in the Jordanian industrial companies listed in the Amman stock exchange: An empirical study. International Journal of Business and Management, 2(2), 40-46.
10 Al-Momani, M. A. (2015). The impact of audit quality features on enhancing earnings quality: The evidence of manufacturing firms listed on the Amman stock exchange. Asian Journal of Finance & Accounting, 7(2), 255-280. https://doi.org/10.5296/AJFA.V7I2.8539   DOI
11 Aregbeyen, O. (2013). The effects of working capital management on the profitability of Nigerian manufacturing firms. Journal of Business Economics and Management, 14(3), 520-534. https://doi.org/10.3846/16111699.2011.651626   DOI
12 Raheman, A., Afza, T., Qayyum, A., & Bodla, M. A. (2010). Working capital management and corporate performance of manufacturing sector in Pakistan. International Research Journal of Finance and Economics, 47(1), 156-169. https://www.researchgate.net/publication/50341524_Working_Capital_Management_and_Corporate_Performance_of_Manufacturing_Sector_in_Pakistan
13 Ngo, D. N. P., & Le, A. T. H. (2021). Relationship between the audit committee and earning management in listed companies in Vietnam. The Journal of Asian Finance, Economics, and Business, 8(2), 135-142. https://doi.org/10.13106/JAFEB.2021.VOL8.NO2.0135   DOI
14 Nguyen, A. H., Pham, H. T., & Nguyen, H. T. (2020). Impact of working capital management on firm's profitability: Empirical evidence from Vietnam. The Journal of Asian Finance, Economics, and Business, 7(3), 115-125. https://doi.org/10.13106/JAFEB.2020.VOL7.NO3.115   DOI
15 Raheman, A. & Nasr, M. (2007). Working capital management and profitability: A case of Pakistani firms. International Review of Business Research Papers, 3(1), 279-300. https://www.researchgate.net/publication/228727444_Working_capital_management_and_profitability-case_of_Pakistani_Firms
16 Ramazani, M., Salehi, M., & Laridashtbayaz, M. (2018). Relationship between cash flow management and financial performance of companies listed on the Tehran Stock Exchange. Proceedings of the Faculty of Economics in East Sarajevo, 1(17), 27-37. https://doi.org/10.7251/ZREFIS1817027R
17 Sharif, M. A., & Islam, M. R. (2018). Working capital management: A measurement tool for profitability: A study on the pharmaceutical industry in Bangladesh. Journal of Finance and Accounting, 6(1), 1. https://doi.org/10.11648/j.jfa.20180601.11   DOI
18 Nastiti, P. K. Y., Atahau, A. D. R., & Supramono, S. (2019). Working capital management and its influence on profitability and sustainable growth. Business: Theory and Practice, 20, 61-68. https://doi.org/10.3846/btp.2019.06   DOI
19 Khan, M. A. I., Alam, M. S., & Syed, A. J. (2021). Correlation between the profitability and working capital practices: A case study in the Gulf Cooperation Council. The Journal of Asian Finance, Economics, and Business, 8(3), 229-235. https://doi.org/10.13106/JAFEB.2021.VOL8.NO3.0229   DOI
20 Kaushik, N., & Chauhan, S. (2019). The role of financial constraints in the relationship between working capital management and firm performance. IUP Journal of Applied Finance, 25(1), 60. https://www.researchgate.net/publication/332269079_The_Role_of_Financial_Constraints_in_the_Relationship_Between_Working_Capital_Management_and_Firm_Performance