Impact of Working Capital Management on Corporate Performance. A Study of Automobile, Chemical, Food, and Pharmaceutical Sector of Pakistan

Abstract

There is no hidden secret that working capital management policies do impact profitability but to what extent this is still a debatable issue. The capital structure theories suggest that apart from firm size, the sensitivity of working capital management policies varies among different business sectors. The present study aims to investigate variations in working capital policies of the Automobile, Chemical, Food, and Pharmaceutical sectors of Pakistan. Firm performance is measured through Return on Assets and Shareholders' wealth is measured through Return on Equity. We find that the chemical sector aggressively manages working capital with a mean value of a Net Trade Cycle is 21 days. The results also suggest that an aggressive working capital policy does not show any association with a firm's profitability while the opposite does hurt a firm's performance.