Working capital management effects on investment-cash flow sensitivity. (17th November 2020)

• Record Type: Journal Article
• Authors: Rashid, Abdul; Kausar, Saba; Shaheen, Samiya
• Is Part Of: Asian journal of management science and applications. Volume 5:Number 1(2020)
• Page Start: 56
• Page End: 74
• Publication Date: 2020-11-17
• Subjects: fixed capital investment -- working capital investment -- cash flow -- financial constraints -- working capital management -- fixed capital -- current capital -- cash flow sensitivity -- financial constraints -- system GMM -- Pakistan Stock Exchange; Management science -- Asia -- Periodicals; 658.009505
• Languages: English
• ISSNs: 2049-8683

Abstract

This study investigated whether working capital management (WCM) affects the investment-cash flow sensitivity in Pakistan Stock Exchange (PSX). For this, both types of WC (fixed capital and current working capital) are used to examine the impact of WC on the cash flow sensitivity of firms. The data comprises of 357 manufacturing firms listed at PSX for the period 2000-2014 by applying the two-step system GMM approach. The results reveal that firms having a high level of WC exhibit the high value of the current WC to cash flow ratio. However, despite the financial obstacles, firms having a low value of fixed capital to cash flow ratio and high value of WC to cash flow ratio have a high level of fixed investment rate. These results reveal that the aggressive WC policy effectively works on the PSX. Particularly, where financial markets are under-developed and access to external finance is limited.