Working capital management effects on investment-cash flow sensitivity
by Abdul Rashid; Saba Kausar; Samiya Shaheen
Asian J. of Management Science and Applications (AJMSA), Vol. 5, No. 1, 2020

Abstract: This study investigated whether working capital management (WCM) affects the investment-cash flow sensitivity in Pakistan Stock Exchange (PSX). For this, both types of WC (fixed capital and current working capital) are used to examine the impact of WC on the cash flow sensitivity of firms. The data comprises of 357 manufacturing firms listed at PSX for the period 2000-2014 by applying the two-step system GMM approach. The results reveal that firms having a high level of WC exhibit the high value of the current WC to cash flow ratio. However, despite the financial obstacles, firms having a low value of fixed capital to cash flow ratio and high value of WC to cash flow ratio have a high level of fixed investment rate. These results reveal that the aggressive WC policy effectively works on the PSX. Particularly, where financial markets are under-developed and access to external finance is limited.

Online publication date: Mon, 30-Nov-2020

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