The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms

The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms

Working capital management policies have been touted as key to influencing a firm’s operational and overall financial well-being. In this study involving Malaysian firms in the trading, services and consumer sectors, working capital management policies were categorized by its short-term asset inves...

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Main Author: Prabahkaran, Narayanan
Format: Thesis
Language:eng
eng
Published: 2014
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HG Finance
Online Access:https://etd.uum.edu.my/4974/1/s93342.pdf
https://etd.uum.edu.my/4974/2/s93342_abstract.pdf
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institution Universiti Utara Malaysia
collection UUM ETD
language eng
eng
advisor Ghazali, Zahiruddin
topic HG Finance
spellingShingle HG Finance
Prabahkaran, Narayanan
The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms
description Working capital management policies have been touted as key to influencing a firm’s operational and overall financial well-being. In this study involving Malaysian firms in the trading, services and consumer sectors, working capital management policies were categorized by its short-term asset investment policy, its short-term asset financing policy and its efficiency in managing its working capital. Using panel data analysis, the fixed effects model reveals that among the three working capital metrics, only a firm’s short-term asset financing policy’s relationship with financial health was moderated by its cost of capital. The study provides empirical evidence that when a firm’s cost of capital increases, the negative relationship between its short-term asset financing policy and its financial health seems to weaken. However, cost of capital does not play a moderating role on the effects of a firm’s other working capital policies (short-term asset investment policy and working capital management efficiency) on financial health. The study also provides empirical evidence that cost of capital has little to do with a firm’s financial health. This study has implications on both theoretical and managerial perspectives. From a theoretical perspective, since a firm’s working capital components are considered important resources, the findings imply that working capital policies seem to significantly affect financial health. From a managerial perspective, moderator analysis helps finance managers make decisions on working capital policy matters. More specifically, when a firm’s cost of capital becomes higher, the negative impact of its aggressive short-term asset financing policy on financial health is now reduced. In other words, its management can advocate an aggressive short-term asset financing policy since its negative impact is now lessened
format Thesis
qualification_name Doctor of Business Administration (DBA)
qualification_level Doctorate
author Prabahkaran, Narayanan
author_facet Prabahkaran, Narayanan
author_sort Prabahkaran, Narayanan
title The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms
title_short The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms
title_full The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms
title_fullStr The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms
title_full_unstemmed The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms
title_sort moderating effect of cost of capital on the relationship between working capital management and financial health in selected malaysian public listed firms
granting_institution Universiti Utara Malaysia
granting_department Othman Yeop Abdullah Graduate School of Business
publishDate 2014
url https://etd.uum.edu.my/4974/1/s93342.pdf
https://etd.uum.edu.my/4974/2/s93342_abstract.pdf
_version_ 1776103660612222976
spelling my-uum-etd.49742022-12-28T00:55:00Z The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms 2014 Prabahkaran, Narayanan Ghazali, Zahiruddin Othman Yeop Abdullah Graduate School of Business Othman Yeop Abdullah Graduate School of Business HG Finance Working capital management policies have been touted as key to influencing a firm’s operational and overall financial well-being. In this study involving Malaysian firms in the trading, services and consumer sectors, working capital management policies were categorized by its short-term asset investment policy, its short-term asset financing policy and its efficiency in managing its working capital. Using panel data analysis, the fixed effects model reveals that among the three working capital metrics, only a firm’s short-term asset financing policy’s relationship with financial health was moderated by its cost of capital. The study provides empirical evidence that when a firm’s cost of capital increases, the negative relationship between its short-term asset financing policy and its financial health seems to weaken. However, cost of capital does not play a moderating role on the effects of a firm’s other working capital policies (short-term asset investment policy and working capital management efficiency) on financial health. The study also provides empirical evidence that cost of capital has little to do with a firm’s financial health. This study has implications on both theoretical and managerial perspectives. From a theoretical perspective, since a firm’s working capital components are considered important resources, the findings imply that working capital policies seem to significantly affect financial health. From a managerial perspective, moderator analysis helps finance managers make decisions on working capital policy matters. More specifically, when a firm’s cost of capital becomes higher, the negative impact of its aggressive short-term asset financing policy on financial health is now reduced. In other words, its management can advocate an aggressive short-term asset financing policy since its negative impact is now lessened 2014 Thesis https://etd.uum.edu.my/4974/ https://etd.uum.edu.my/4974/1/s93342.pdf text eng public https://etd.uum.edu.my/4974/2/s93342_abstract.pdf text eng public dba dba Universiti Utara Malaysia Afza, T. & Nazir, M.S. (2007, February 24-25). Working Capital Management Policies of Firms: Empirical Evidence from Pakistan. Paper presented at the 9th South Asian Management Forum (SAMF), North South University, Dhaka, Bangladesh. Agarwal, V. & R. Taffler, (2007). Twenty-five years of the Taffler Z-score model: does it really have predictive ability? Accounting and Business Research, 37(4), 285- 300. Agarwal, V. & R. Taffler, (2008). 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