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

Dynamic Relationship between Working Capital Management and Financial Performance: Evidence from Asia

Abstract

The literature on working capital management and financial performance is inconclusive as it presents contradictory evidence. This study attempts to highlight the impact of working capital management on firm performance by drawing a large sample of non-linancial sector of fourteen Asian Economies that include Bangladesh. China, Hong Kong, India, Indonesia, Japan. Malaysia. Pakistan. Sn Lanka. Singapore. Thailand. Vietnam. South Korea and Taiwan from 2000 to 2018. The analysis is conducted separately for each country to bring new insights into dynamic environment of each country. Factor analysis is used to streamline the indicators of working capital. EGLS' results show that effect of working capital on firm performance varies across countries. Most importantly, the study uses patlial adjustment model to analyze the long mn relationship and speed of adjustment to desired performance. The results elucidate changing speed of adjustment across different countries.The variation in speed of adjustment calls attention to the fact that same approach can not he used across countries to chalk out the policy. The findings of the study bring new insights by enunciating empirical evidence from 14 different countries and lay down base for comparative analysis. The findings have widespread implications for management as results can be used to decide optimal level working and the time required to reach at desired level.