The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia

The relationship between working capital and profitability cannot be ignored because the improvement in the profitability is necessary for the survival of a firm. Therefore, the objective of this study is to investigate the relationship between working capital management and profitability of Bumiput...

Full description

Saved in:

Bibliographic Details
Main Author:	Fairuz Sofia, Kaharuddin
Format:	Thesis
Language:	eng eng
Published:	2018
Subjects:	HG Finance
Online Access:	https://etd.uum.edu.my/7842/1/s818101_01.pdf https://etd.uum.edu.my/7842/13/s818101_02.pdf
Tags:	Add Tag No Tags, Be the first to tag this record!

id	my-uum-etd.7842
record_format	uketd_dc
institution	Universiti Utara Malaysia
collection	UUM ETD
language	eng eng
advisor	Mazlan, Ahmad Rizal
topic	HG Finance
spellingShingle	HG Finance Fairuz Sofia, Kaharuddin The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia
description	The relationship between working capital and profitability cannot be ignored because the improvement in the profitability is necessary for the survival of a firm. Therefore, the objective of this study is to investigate the relationship between working capital management and profitability of Bumiputera-controlled companies in Malaysia. The period of this study is from year 2006 until 2012. This study uses a panel data of ninety-four (94) Bumiputera companies listed on Kuala Lumpur Stock Exchange. Cash conversion cycle and its components are used as measures for working capital management. The main theory used is the trade-off theory. The trade-off theory provides support for manager’s trade-off between profitability and risk associated with the level of current asset and liabilities. Findings from the panel data regression analysis reveal that inventory conversion period and receivable collection period are significantly negatively correlated to profitability. This suggests that the shorter the period, the higher the profitability of Bumiputera-controlled companies tends to be. However, cash conversion cycle is significantly and positively correlated to profitability, suggesting that the longer the cash conversion period, the higher the profitability. The payable collection period is not significantly correlated to profitability. Finally, the study provides managerial implications, and suggests the direction for future research.
format	Thesis
qualification_name	masters
qualification_level	Master's degree
author	Fairuz Sofia, Kaharuddin
author_facet	Fairuz Sofia, Kaharuddin
author_sort	Fairuz Sofia, Kaharuddin
title	The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia
title_short	The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia
title_full	The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia
title_fullStr	The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia
title_full_unstemmed	The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia
title_sort	relationship between working capital management and profitability of bumiputera-controlled companies in malaysia
granting_institution	Universiti Utara Malaysia
granting_department	Othman Yeop Abdullah Graduate School of Business
publishDate	2018
url	https://etd.uum.edu.my/7842/1/s818101_01.pdf https://etd.uum.edu.my/7842/13/s818101_02.pdf
_version_	1747828275534626816
spelling	my-uum-etd.78422021-08-09T07:16:44Z The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia 2018 Fairuz Sofia, Kaharuddin Mazlan, Ahmad Rizal Othman Yeop Abdullah Graduate School of Business Othman Yeop Abdullah Graduate School of Business HG Finance The relationship between working capital and profitability cannot be ignored because the improvement in the profitability is necessary for the survival of a firm. Therefore, the objective of this study is to investigate the relationship between working capital management and profitability of Bumiputera-controlled companies in Malaysia. The period of this study is from year 2006 until 2012. This study uses a panel data of ninety-four (94) Bumiputera companies listed on Kuala Lumpur Stock Exchange. Cash conversion cycle and its components are used as measures for working capital management. The main theory used is the trade-off theory. The trade-off theory provides support for manager’s trade-off between profitability and risk associated with the level of current asset and liabilities. Findings from the panel data regression analysis reveal that inventory conversion period and receivable collection period are significantly negatively correlated to profitability. This suggests that the shorter the period, the higher the profitability of Bumiputera-controlled companies tends to be. However, cash conversion cycle is significantly and positively correlated to profitability, suggesting that the longer the cash conversion period, the higher the profitability. The payable collection period is not significantly correlated to profitability. Finally, the study provides managerial implications, and suggests the direction for future research. 2018 Thesis https://etd.uum.edu.my/7842/ https://etd.uum.edu.my/7842/1/s818101_01.pdf text eng public https://etd.uum.edu.my/7842/13/s818101_02.pdf text eng public https://sierra.uum.edu.my/record=b1699294~S1 masters masters Universiti Utara Malaysia Abuzayed, B. (2012). Working capital management and firms’ performance in emerging markets: the case of Jordan. International Journal of Managerial Finance, 8(2), 155–179. Ademola, O. J. (2014). Working Capital Management and Profitability of Selected quoted food and beverages manufacturing firms in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(3), 10–21. Agha, H. (2014). Impact of Working Capital Management on Profitability. European Scientific Journal, 10(1), 1857–7881. doi.org/10.11648/j.ijefm.20140206.17 Akinlo, O., & Olufisayo, O. (2011). The Effect of Working Capital on Profitability of Firms in Nigeria: Evidence from General Method of Moments (GMM). Asian Journal of Business and Management Sciences, 1(2), 130–135. Retrieved from http://www.ajbms.org Albdwy, F., Shah, M., & Salman, S. (2014). Impact of working capital management on the profitability of Shariah-Compliant and non-Shariah firms: The Case of Malaysia. Capital Market Review, 22, 41–58. Ali, S. (2011). Working Capital Management and the Profitability of the Manufacturing Sector: A Case Study of Pakistan’s Textile Industry. The Lahore Journal of Economics, 16(2), 141–178. Aminudin, N. A. (2000). Corporate Performance and Ownership Structure: A Comparative Analysis Between Bumiputera and Non-Bumiputera Controlled Companies (Master thesis). Retrieved from University of Malaya Students Repository Anojan, V., Arulalan, N., & Nimalathasan, B. (2013). Working Capital Management and Its Impact on Profitability : A Study of Selected Listed Beverage, Food and Tobacco Companies in Colombo Stock Exchange , Sri Lanka Abstract : The International Journal of Business & Management, 1(2), 10–17. Appuhami, R. (2008). The Impact of Firms’ Capital Expenditure on working Capital Management: An empirical Study across Industries in Thailand. International Management Review, 4(1). Ariff, M., & Abubakar, S. Y. (1999). The Developing Economies, 37(4), 417–438. Retrieved from http://www.ide.go.jp Asian Economic Review. (2000). Bumiputera controlled companies left behind in economic recovery. Retrieved from http://www.cdrindia.org Bank Negara Malaysia. (n.d.). Retrieved from http://bnm.gov.my Baveld, M. (2012). Impact of Working Capital Management on the Profitability of Public Listed Firms in the Netherlands during the Financial Crisis. Retrieved from University of Twente Student Thesis. Bhattacharya, H. (2003). Working capital management: Strategies and techniques. New Delhi: Prentice Hall India Learning Private Limited. Bottazzi, G., Dosi, G., Lippi, M., Pammolli, F., & Riccaboni, M. (2001). Innovation and corporate growth in the evolution of the drug industry. International Journal of Industrial Organization, 19(7), 1161–1187. Retrieved from https://pdfs.semanticscholar.org Brealey, R.A. and Myers, S.C. (2003), Principles of Corporate Finance, International Edition, 7th edition, New York: McGraw-Hill. Bulin, S., Basit, A., & Muhammad Hamza, S. (2016). Impact of Working Capital Management on Firm’S Profitability. International Journal of Accounting and Business Management, 4(2). Retrieved from http://www.ftms.edu.my Charitou, M., Lois, P., & Santoso, H. B. (2012). The Relationship Between Working Capital Management and Firm’s profitability: A Empirical Investigation For An Emerging Asian Country. International Business and Economics Research Journal, 11(8), 839–849. Charitou, M. S., Elfani, M., & Lois, P. (2010). The relationship between working capital efficiency and profitability. Journal of Business & Economics Research, 8(12). doi:10.19030/jber.v8i12.782 Ching, H. Y., Gerab, F., & Novazzi, A. (2011). Relationship Between Working Capital Management and Profitability in Brazilian Listed Companies. Journal of Global Business & Economics, 3(1), 74–86. Retrieved from https://www.researchgate.net Cowling, M. (2004). The Growth - Profit Nexus. Small Business Economics, 22(1), 1–9. Retrieved from https://link.springer.com Dong, H. P., & Su, J. (2010). The Relationship between Working Capital Management and Profitability: A Vietnam Case. International Research Journal of Finance and Economics, (49). doi:10.1017/CBO9781107415324.004 Duellman, S. (2006). Evidence on the role of accounting conservatism in corporate governance (Doctoral dissertation). Retrieved from https://surface.syr.edu Deloof, M. (2003). Does working capital management affects profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3), 573–587. doi:10.1111/1468-5957.00008 Dev, P., George, S. V., & Ariff, M. (2006). Government Public Policy, Regulatory Intervention, and Their Impact on IPO Underpricing: The Case of Malaysian IPOs. Journal of Small Business Management, 44(1), 81–98. Dinku, T. (2013). Impact of Working Capital Management on Profitability of Micro and Small Enterprises in Ethiopia : The Case of Bahir Dar City Administration. International Journal of Accounting and Taxation, 1(1), 15–24. Dittmar, A., Mahrt-Smith, J., & Servaes, H. (2002). Corporate Liquidity. London: Centre for Economic Policy Research. Dong, H. P., & Su, J. (2010). The Relationship between Working Capital Management and Profitability: A Vietnam Case. International Research Journal of Finance and Economics, (49). doi:10.1017/CBO9781107415324.004 Falope, O. I., & Ajilore, O. T. (2009). Working Capital Management and Corporate Profitability: Evidence from Panel Data Analysis of Selected Quoted Companies in Nigeria. Research Journal of Business Management, 3(3), 73–84. doi:10.3923/rjbm.2009.73.84 Garcia, P. J., & Martinez, P. (2007). Article information : International Journal of Managerial Finance, 3(2), 164–177. doi:10.1108/JHOM-09-2016-0165 Gill, A., Biger, N., & Mathur, N. (2011). The Effect of Capital Structure on Profitability: Evidence from the United States. International Journal of Management, 28(4), 3–15. Gill, A., Biger, N., Mathur, N., Palmer, S., Street, W. H., & Vb-k, B. C. (2010). The Relationship Between Working Capital Management And Profitability : Evidence From The United States. Business and Economics Journal, 2010(1), 1–9. doi:10.18052/www.scipress.com/ILSHS.20.14 Greiner, L. E. (1972). Evolution and Revolution as Organizations Grow. Harvard Business Review, 50(4), 37–46. Retrieved from https://ils.unc.edu Gujarati, D. N. (2003). Basic Econometrics (4th Edition). New York: McGraw-Hill. Gul, S., Khan, M. B., Rehman, S. U., Khan, M. T., Khan, M., & Khan, W. (2013). Working Capital Management and Performance of SME Sector. European Journal of Business and Management, 5(1), 60–69. doi:10.5897/AJBM2013.6899 Halim, M. S., Haniff, M. S., Junoh, M. Z., & Osman, A. (2014). Financial performance and the management issues of Bumiputera construction firms in the Malaysian construction industry. Journal of Scientific Research & Reports, 3(9), 1190–1202. Retrieved from http://www.journalrepository.org Hillier, D., Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2010). Corporate Finance. Berkshire: McGraw-Hill. Huang, P., Zhang, Y., Deis, D. R., & Moffitt, J. S. (2009). Do artificial income smoothing and real income smoothing contribute to firm value equivalently? Journal of Banking and Finance, 33(2), 224–233. doi:10.1016/j.jbankfin.2008.07.012 Jang, S. C., & Park, K. M. (2011). Inter-relationship between firm growth and profitability. International Journal of Hospitality Management, 30(4), 1027–1035. Johari: 132 firms listed on Bursa are bumi-controlled companies. (2015, October 1). The Star Online. Retrieved from https://www.thestar.com.my/business/businessnews/2015/10/01/johari-132-firms-listed-on-bursa-are-bumicontrolledcompanies/ Karadagli, E. C. (2012). The Effect of Working Capital Management on the Profitability of Turkish SMEs. British Journal of Economics, Finance and Management Science, 5(2), 36–44. doi:10.1007/s13398-014-0173-7.2 Kaur, H. V., & Singh, S. (2013). Managing Working Capital Efficiency in Capital Goods Sector in India. Global Business Review, 14(2), 343–355. doi:10.1177/0972150913477526 Keown, A., Martin, J., Petty, J. W., & Scott, D. (2005). Financial Management Principles and Application (10th Edition). New Jersey: Pearson Prentice Hall. Khanqah, V. T., Elham, G., Mohsen, A. K., & Mohammadreza, E. (2012). Working capital management and corporate performance: evidence from Iranian companies. Social and Behavioral Science, 62, 1313–1318. Lazaridis, I., & Tryfonidis, D. (2006). “ The relationship between working capital management and profitability of listed companies in the Athens Stock Exchange.” Journal of Financial Management and Analysis, 30(76), 1–12. Makridakis, S. G., & Wheelwright, S. C. (1978). Forecasting: methods and applications. California: Wiley. Malik, M. S., & Bukhari, M. (2014). The Impact of Working Capital Management on Corporate Performance : A Study of Firms in Cement , Chemical and Engineering Sectors of. Pakistan Journal of Commerce and Social Sciences, 8(1), 134–148. Mansoori, E., & Muhammad, J. (2012). Effect of Working capital management on firm’s profitability: Evidence from Singapore. Interdisciplinary Journal of Contemporary Research in Business, 4(5), 472–486. Marimuthu, M. (2010). Bumiputera-Controlled Companies: Performance Evaluation Using A Non-Parametric Approach. International Journal of Economics and Finance, 2(2), 178–185. doi:10.5539/ijef.v2n2p178 Markman, G. D., & Gartner, W. B. (2002). Is extraordinary growth profitable a study of inc. 500 high-growth companies. Entrepreneurship Theory and Practice, 27(1). doi: 10.1111/1540-8520.t01-2-00004 Mathuva, D. M. (2010). The Influence of Working Capital Management Components on Corporate Profitability: A Survey on Kenyan Listed Firms. Research Journal of Business Management. doi:10.3923/rjbm.2010.1.11 Mohamad, N. E. A., & Saad, N. (2010). Working Capital Management : The Effect of Market Valuation and Profitability in Malaysia. International Journal of Business and Management, 5(11), 140–147. doi:10.5539/ijbm.v5n11p140 Misbah, S., Anjum, M. J., Aqdas, M. I., Marwat, N. K., & Khan, M. A. R. (2015). The Relationship between Working Capital Management and Profitability: Evidence from Listed Companies in Kuala Lumpur Stock Exchange (KSE) Malaysia. International Journal of Information Processing & Management, 6(1), 104. Retrieved from http://search.ebscohost.com Needles, B. E., Powers, M., & Frigo, M. L. (2008). Performance measurement and executive compensation: Practices of high-performance companies. Studies in Managerial and Financial Accounting. Bingley: Emerald Group Publishing Limited. Niresh, J. A., & Velnampy, T. (2014). Firm Size and Profitability: A Study of Listed Manufacturing Firms ed Manufacturing Firms in Sri Lanka. International Journal of Business and Management, 9(4), 57–64. doi:10.5539/ijbm.v9n4p57 H., Abdullatif, M., & Alhajjar, M. (2011). Cash conversion cycle and firm’s performance of Japanese firms. Asian Review of Accounting, 19(2), 147–156. doi: 10.1108/13217341111181078 Nobanee, H., & Alhajjar, M. (2009). A note on working capital management and corporate profitability of Japanese firms. Available at: http://ssrn.com/abstract¼1471230. Nimalathasan, B. (2010). Working capital management and its impact on profitability : A study of selected listed manufacturing companies in Sri Lanka. Information Management, 12, 76–83. Ozgulbas, N., Koyuncugil, A. S., & Yilmaz, F. (2006). Identifying the Effect of Firm Size on Financial Performance of SMEs. The Business Review, 6(1), 162–167. Qazi, H. A., Shah, S. M. A., Abbas, Z., & Nadeem, T. (2011). Impact of working capital on firms’ profitability. African Journal of Business Management, 5(27), 11005–11010. doi: 10.5897/AJBM11.326. Quayyum, S. T. (2011). Effects of working capital management and liquidity: Evidence from the cement industry of Bangladesh. Journal of Business and Technology (Dhaka), 4(1), 37–47. Retrieved from http://www.banglajol.info Padachi, K. (2006). Trends in Working Capital Management and its Impact on Firms’ Performance: An Analysis of Mauritian Small Manufacturing Firms. International Review of Business Research Papers, 2(2), 45–58. Raheman, A., & Nasr, M. (2007). Working capital management and profitability- case of Pakistani Firms. International Review of Business Research Papers, 3(1), 279–300. Retrieved from https://www.researchgate.net/publication/228727444 Raheman, A., Afza, T., Qayyum, A., & Bodla, M. A. (2010). Working capital management and corporate performance of manufacturing sector in Pakistan. International Research Journal of Finance and Economics, 47(1), 156–169. Ray, S. (2012). Evaluating the Impact of Working Capital Management Components on Corporate Profitability : Evidence from Indian Manufacturing Firms. International Journal of Economic Practices and Theories, 2(3), 127–136. Raza, M. W. (2013). Affect of Financial Leverage on Firm Performance. Empirical Evidence from Karachi Stock Exchange. Canadian Journal of Regional Science, 50383(Septermber 2013), 1–20. doi:10.1227/01.NEU.0000349921.14519.2A Reid, G. C. (1995). Trajectories of Small Business Financial Structure. Small Business Economics, 20(4), 273–285. doi:10.1023/A:1022915308274 Rimo, A., & Panbunyuen, P. (2010). The Effect Of Company Characteristics on working Capital Management (Master thesis). Retrieved from http://www.divaportal.org Riyanto, B. (2001). Dasar-dasar pembelanjaan perusahaan. Yogyakarta : BPFE. Saghir, A., Hashmi, F. M., & Hussain, M. N. (2011). Working Capital Management and Profitability: Evidence from Pakistan Firms. Interdisciplinary Journal of Contemporary Research In Business, 3(8), 1092–1105. doi:10.1007/s40622-014-0043-3 Salim, M., & Yadav, R. (2012). Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies. Procedia - Social and Behavioral Sciences, 65(ICIBSoS), 156–166. doi:10.1016/j.sbspro.2012.11.105 Sharma, A. K., & Kumar, S. (2011). Effect of Working Capital Management on Firm Profitability. Global Business Review, 12(1), 159–173. doi:10.1177/097215091001200110 Sin, H. N., Chen, Y., Tze, S. O., & Boon, H. T. (2017). The Impact of Working Capital Management on Firm’s Profitability : Evidence from Malaysian Listed Manufacturing Firms. International Journal of Economics and Financial Issues, 7(3), 662–670. Singh, P. K. (2004). Working capital management in Lupin laboratories Ltd. -A case study. Management Accountant Calcutta, 39(7), 534–541. Smith, K. (1980). Profitability versus Liquidity Tradeoffs in Working Capital Management, Readings on the Management of Working Capital. New York, NY: West Publishing Company. Soekhoe, S. (2012). The effects of working capital management on the profitability of Dutch listed firms (Master thesis). Retrieved from doi:10.3846/16111699.2011.651626 Subramanyam, K. R. (2014). Financial Statement Analysis (11th Editi). Singapore: McGraw-Hill. Treasury of Malaysia. (2017). Kriteria Pemberian Taraf “ Bumiputera Controlled Public Listed Companies.” (Publication No. LB 1.1). Retrieved from 1pp.treasury.gov.my/topik/fail/41/muat-turun Uremadu, S. O., Egbide, B.-C., & Enyi, P. E. (2012). Working Capital Management, Liquidity and Corporate Profitability Among Quoted Firms in Nigeria Evidence from the Productive Sector. International Journal of Academic Research in Accounting, Finance and Management Sciences, 2(1), 80–97. Retrieved from http://ideas.repec.org/a/hur/ijaraf/v2y2012i1p80-97.html Usama, M. (2012). Working Capital Management and its Affect on firm’s Profitability and Liquidity : in other Food Sector of ( KSE ) Karachi Stock Exchange. Oman Chapter of Arabian Journal of Business and Management Review, 1(12), 62–73. Retrieved from doi:10.12816/0002232 Van Horne, J. C., & Wachowicz, J. M. (2009). Fundamentals of Financial Management (13th editi). Harlow: FT Prentice Hall. Wasiuzzaman, S. (2015). Working capital and firm value in an emerging market. International Journal of Managerial Finance, 11(1), 60–79. doi:10.1108/IJMF-01-2013-0016 Wasiuzzaman, S., & Arumugam, V. C. (2013). Determinants of Working Capital Investment: A Study of Malaysian PublicListed Firms. Australasian Accounting, Business and Finance Journal, 7(2), 63–83. doi:10.14453/aabfj.v7i2.5 Yatim, P., Kent, P., & Clarkson, P. (2006). Governance structures, ethnicity, and audit fees of Malaysian listed firms. Managerial Auditing Journal, 21(7), 757–782. doi:10.1108/02686900610680530 Yunos, R. M., Nazaruddin, N., Ghapar, F. A., Ahmad, S. A., & Zakaria, N. B. (2015). Working Capital Management in Malaysian Government-linked Companies. Procedia Economics and Finance, 31(15), 573–580. doi:10.1016/S2212-5671(15)01203-4 Zariyawati, M. A., Annuar, M. N., & Pui-San, N. (2016). Working Capital Management Determinants of Small and Large Firms In Malaysia. Int. Journal of Economics and Management, 10(November), 365–377. Retrieved from http://www.ijem.upm.edu.my Zariyawati, M. A., Annuar, M. N., & Taufiq, H. (2009). Working Capital Management and Corporate Performance: Case of Malaysia. Journal of Modern Accounting and Auditing, 5(November 2009). Retrieved from https://www.researchgate.net/publication/259704839

The relationship between working capital management and profitability of bumiputera-controlled companies in Malaysia

Similar Items