| Pub. Date | : Oct, 2018 |
|---|---|
| Product Name | : The IUP Journal of Applied Finance |
| Product Type | : Article |
| Product Code | : IJAF31810 |
| Author Name | : Hafiz Muhammad Imran Akram, Aamer Shahzad and Imtiaz Ahmad |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 14 |
The present study examines the impact of corporate governance on the efficiency of working capital management. For this purpose, manufacturing firms listed on Pakistan Stock Exchange (PSX) are selected for the period 2013 to 2017. The results indicate that Corporate Governance Index (CGI) consists of working capital like cash, current ratio, accounts receivable turnover and inventory turnover. The board with more independent directors, dual leadership, and director ownership contributes efficiently in managing working capital. The internal audit committee and external (big four) auditor keep a check on firms' accounts.
capital requirements, which in turn would increase firms' free cash flow (Ganesan, 2007). Poor management of working capital, brought by poor corporate governance, negatively impacts shareholders' wealth. Working capital management is the management of current liabilities and current assets. The working capital items include cash, accounts receivable, inventory turnover, short-term investment, and payables (Gill and Biger, 2013), but cash is one of the most important to monitor the behavior of management (Isshaq et al., 2009). In financial management, working capital is viewed as an important area because it affects profitability and liquidity. The ideal working capital policy has a positive relationship with the value of the firm (Bagchi and Khamrui, 2012). According to Ukaegbu (2014), the optimal level of working capital helps in minimizing the requirements of working capital which increases the firm's free cash flow. When current liabilities exceed current assets, liquidity problem emerges. Thus, working capital is deemed to affect profitability, liquidity, and solvency as well. Block et al. (2016) further affirmed the importance of working capital by stating that "while long-term decisions involving plant and equipment or marketing strategy may well determine the eventual success of the firm, effective and efficient short-term decisions on working capital determine whether the firm gets to the long-term".
Applied Finance Journal.