The Relation between Working Capital Management and Investment Inefficiency

Document Type : Research Paper

Authors

1 Tabriz Azad University

2 Tabriz, Azad University

Abstract

Working capital management refers to the management of current assets, and current liabilities to create a balance between current assets and current liabilities. By effective management of working capital, shareholders can earn the maximum return for investment in assets. Hence, the present study investigates the relation between working capital management and investment inefficiency at listed forms in the Tehran Stock Exchange for the period of 2005-2012. The results show that receivables collection period, debt payment period and cash conversion cycle efficiency are negatively related to the investment inefficiency, while there is no relation between inventory turnover period and inefficient investment. Also evidences indicate that cash conversion cycle, cash holdings and the current ratio are positively related to the investment inefficiency. Overall, in can be stated that the efficient management of working capital reduces the deviation from optimal investment.

Keywords

Main Subjects

References

]1[بادآور نهندی،یونس و وحید تقی‌زاده خانقاه.(1392). بررسی ارتباط بین کیفیت حسابرسی و کارایی سرمایه‌گذاری.بررسی‌های حسابداری و حسابرسی،  20 (2): 42-19.
]2[ ثقفی، علی. بولو، قاسم. محمدیان، محمد.(1390). کیفیتاطلاعاتحسابداری،سرمایه‌گذاریبیشازحدوجریان‌نقدآزاد، پیشرفت‌های حسابداری، 3 (2): 63-37.
]3[ رستمی، محمدرضا. نوروزی، محمد. صابری، مریم. علی محمدی، میثم. (1393). بررسیرابطۀمدیریتسرمایهدرگردشوهزینه‌هاینمایندگی،  مدیریتداراییوتأمینمالی، 2 (2): 30-17.
]4[رضایی، نواب. گرکز، منصور. (1392). اثر تغییرات سرمایه درگردش بر فرصت‌های سرمایه‌گذاری. مدیریت دارایی و تأمین مالی، 1 (3): 118-99.
]5[ یعقوبی‌نژاد، احمد.، وکیلی فرد، حمیدرضا.، بابایی، احمدرضا. (1389). ارتباطبینمدیریتسرمایۀدرگردشوسودآوریدرشرکت‌هایپذیرفته‌شده دربورساوراقبهادارتهران. مهندسیمالیومدیریتپرتفوی، 1 (2): 137-117.
]6[ فروغی،داریوش. فرزادی،سعید. (1393).بررسیتأثیرتغییراتجریان‌هاینقدیبرسطحنگهداشتوجهنقدبادرنظرگرفتن محدودیتتأمینمالیشرکت‌هایپذیرفته‌شدهدربورساوراقبهادارتهران، مدیریتداراییوتامینمالی، 2 (4): 36-21.
]7[ مرادی، محمد علی. نجار، مصطفی. (1392). بررسیرابطۀبینمازادسرمایهدرگردشومازادبازدهسهام شرکت‌هایپذیرفته‌شدهدربورساوراقبهادارتهران. بررسی های حسابداری و حسابرسی، 2 (2): 132-109.
[8] Appuhami, R. (2009). Corporate Investments and the Dual-Role of Working Capital: Evidence from Thailand, Journal of Applied Management Accounting Research, 7 (1): 53-62.
[9] Biddle, G., Hilary, G. and Verdi, R.S. (2009). How Does Financial Reporting Quality Relate to Investment Efficiency?.Journal of Accounting and Economics, 48 (4): 112-31.
[10] Beatty, A., Liao, W.S., Weber, J. (2010). The Effect of Private Information and Monitoring on The Role of Accounting Quality in Investment Decisions. Contemporary Accounting Research, 27 (1): 17-47.
[11] Besley, S. and Brigham, E.F. (2005). Essential of Managerial Finance, 13th ed, Thomson South-Western, Mason, OH.
[12] Caballero, S.B., Teruel, P.J.G., Solano, P.M. (2014). Working Capital Management, Corporate Performance, and Financial Constraints.Journal of Business Research, 67 (3): 332-338.
[13] Chen, F., Hope, O.K., Li, Q., Wang, X. (2011). Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets, The Accounting Review, 86 (4): 1255–1288.
[14] Cossin, D. and Hricko, T. (2004). The Benefits of Holding Cash: a Real Options Approach. Managerial Finance, 30 (5): 29-43.
[15] Dechow, P., Dichev, I., (2002). The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. The Accounting Review, 77 (Supplement): 35-59.
[16] Deloof, M. (2003). Does Working Capital Management Affect Profitability of BelgianFirms? Journal of Business Finance & Accounting, 30 (3-4): 573–587.
[17] Diang, S., Guarigila, A., Knight, J. (2013). Investment and Financing Constraints in China: Does Working Capital Management Make a Difference?.Journal of Banking & Finance, 37 (5): 1490-1507.
[18] Dittmar, A., J. Mahrt-Smith, and H. Servaes. (2003). International Corporate Governance and Corporate Cash Holdings, Journal of Financial and Quantitative Analysis, 38(1): 111-133.
[19] Isshaq, Z., Bokpin, G.A. and Onumah, J.M. (2009). Corporate Governance, Ownership Structure, Cash Holdings, and Firm Value on the Ghana Stock Exchange.The Journal of Risk Finance, 10 (5): 488-499.
[20] Faulkender, M. Wang, R. (2006). Corporate Financial Policy and the Value of Cash, The Journal of Finance, 61 (4): 1957-1990.
[21] Ferreira, M.A. and Vilela, A.S. (2004). Why do Firms Hold Cash? Evidence from EMU countries.European Financial Management, 10 (2): 295-319.
[22] Jensen, M. (1986). Agency Costs of Free Cash Flow, Corporate Finance and Takeovers.American Economic Review, 76 (2): 323-9.
[23] Ganesan, V. (2007). An Analysis of Working Capital Management Efficiency inTelecommunication Equipment Industry, River Academic Journal, 3(2): 1-10.
 [24] Garcia, J.L., Martin, F., Brando, E. (2011).The Impact of Working Capital Management upon Companies’ Profitability: Evidence from European Companies. www.ssrn.com.
[25] Gill, A. and Shah, C. (2012). Determinants of Corporate Cash Holdings: Evidence from Canada. International Journal of Economics and Finance, 4 (1): 70-79.
[26] Gill, A. S. Biger, N. (2013). The Impact of Corporate Governance on Working Capital Management Efficiency of American Manufacturing Firms, Managerial Finance, 39 (2): 116 - 132
[27] Kim, J., Kim, H. and Woods, D. (2011). Determinants of Corporate Cash-Holding Levels: An Empirical Examination of the Restaurant Industry. International Journal of Hospitality Management, 30 (3): 568-74.
[28] Michalski, G. (2008). Determinants of Accounts Receivable Level: Portfolio Approach in Firm’s Trade Credit Policy. Acta Oeconomica Pragensia, 16 (5): 47-56.
[29] Modigliani, F., and M. Miller. (1958). The Cost of Capital, Corporation Finance, and the Theory of Investment. American Economic Review, 48 (3): 261–297.
[30] Myers, S. C., Majluf, N. S. (1984). Corporate Financing and Investment Decisions When Firms have in Formation that Investors Do not have. Journal of Financial Economics, 13 (2): 187–221.
[31] Nadiri, M.I. (1969). The Determinants of Real Cash Balances in the US Total Manufacturing Sector.The Quarterly Journal of Economics, 83 (2): 173-96.
 [32] Petersen, M., & Rajan, R. (1997). Trade credit: Theories and Evidence. Review of FinancialStudies, 10, 661–691.
[33] Richardson, S., (2006). Over-Investment of Free Cash Flow.Review of Accounting Studies, 11 (2-3): 159–189.
 [34] Sheu, H. J. Lee, SH, Y. (2012). Excess Cash Holdings and Investment: The Moderating Roles of Financial Constraints and Managerial Entrenchment, Accounting & Finance, 52 (Supplement): 287-310.
[35] Stulz, R., (1990). Managerial Discretion and Optimal Financing Policies.Journal of Financial Economics, 26 (1): 3–27.
 
 

Files

Share

How to cite

Statistics