Does Working Capital Management Influence Operating and Market Risk of Firms?

Extant empirical studies have predominantly focused on the nexus between working capital management (WCM) and corporate profitability. While there is a dearth of literature on the nexus between WCM and a firm’s risk, the present study examines Pakistani-listed firms coming from 12 diverse industrial...

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Autores principales:	Ahsan Akbar, Minhas Akbar, Marina Nazir, Petra Poulova, Samrat Ray
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	working capital management operating risk market risk system gmm listed firms Pakistan Insurance HG8011-9999
Acceso en línea:	https://doaj.org/article/10455d873ec24237b12a125e51e5745f
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spelling	oai:doaj.org-article:10455d873ec24237b12a125e51e5745f2021-11-25T18:56:11ZDoes Working Capital Management Influence Operating and Market Risk of Firms?10.3390/risks91102012227-9091https://doaj.org/article/10455d873ec24237b12a125e51e5745f2021-11-01T00:00:00Zhttps://www.mdpi.com/2227-9091/9/11/201https://doaj.org/toc/2227-9091Extant empirical studies have predominantly focused on the nexus between working capital management (WCM) and corporate profitability. While there is a dearth of literature on the nexus between WCM and a firm’s risk, the present study examines Pakistani-listed firms coming from 12 diverse industrial segments to observe this association for a time span of ten years (2005–2014). To ensure robustness, we employed a System Generalized Method of Moments (SGMM) regression estimation to investigate the influence of WCM on the operational and market risk for firms. Empirical testing revealed that higher working capital levels were associated with lower volatility in firms’ stock price, which shows that shareholders prefer a conservative working capital policy. Moreover, firms with better cash positions were subject to lesser stock market volatility. In contrast, excess working capital and a larger net trade cycle were associated with increased volatility in the operating income. Besides, firms with lower working capital levels relative to their respective industry experienced fewer fluctuations in their operating profits. Our findings assert that short-term financial management has important ramifications for firms’ operating and market fundamentals. Practical implications are discussed for corporate managers and relevant stakeholders.Ahsan AkbarMinhas AkbarMarina NazirPetra PoulovaSamrat RayMDPI AGarticleworking capital managementoperating riskmarket risksystem gmmlisted firmsPakistanInsuranceHG8011-9999ENRisks, Vol 9, Iss 201, p 201 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	working capital management operating risk market risk system gmm listed firms Pakistan Insurance HG8011-9999
spellingShingle	working capital management operating risk market risk system gmm listed firms Pakistan Insurance HG8011-9999 Ahsan Akbar Minhas Akbar Marina Nazir Petra Poulova Samrat Ray Does Working Capital Management Influence Operating and Market Risk of Firms?
description	Extant empirical studies have predominantly focused on the nexus between working capital management (WCM) and corporate profitability. While there is a dearth of literature on the nexus between WCM and a firm’s risk, the present study examines Pakistani-listed firms coming from 12 diverse industrial segments to observe this association for a time span of ten years (2005–2014). To ensure robustness, we employed a System Generalized Method of Moments (SGMM) regression estimation to investigate the influence of WCM on the operational and market risk for firms. Empirical testing revealed that higher working capital levels were associated with lower volatility in firms’ stock price, which shows that shareholders prefer a conservative working capital policy. Moreover, firms with better cash positions were subject to lesser stock market volatility. In contrast, excess working capital and a larger net trade cycle were associated with increased volatility in the operating income. Besides, firms with lower working capital levels relative to their respective industry experienced fewer fluctuations in their operating profits. Our findings assert that short-term financial management has important ramifications for firms’ operating and market fundamentals. Practical implications are discussed for corporate managers and relevant stakeholders.
format	article
author	Ahsan Akbar Minhas Akbar Marina Nazir Petra Poulova Samrat Ray
author_facet	Ahsan Akbar Minhas Akbar Marina Nazir Petra Poulova Samrat Ray
author_sort	Ahsan Akbar
title	Does Working Capital Management Influence Operating and Market Risk of Firms?
title_short	Does Working Capital Management Influence Operating and Market Risk of Firms?
title_full	Does Working Capital Management Influence Operating and Market Risk of Firms?
title_fullStr	Does Working Capital Management Influence Operating and Market Risk of Firms?
title_full_unstemmed	Does Working Capital Management Influence Operating and Market Risk of Firms?
title_sort	does working capital management influence operating and market risk of firms?
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/10455d873ec24237b12a125e51e5745f
work_keys_str_mv	AT ahsanakbar doesworkingcapitalmanagementinfluenceoperatingandmarketriskoffirms AT minhasakbar doesworkingcapitalmanagementinfluenceoperatingandmarketriskoffirms AT marinanazir doesworkingcapitalmanagementinfluenceoperatingandmarketriskoffirms AT petrapoulova doesworkingcapitalmanagementinfluenceoperatingandmarketriskoffirms AT samratray doesworkingcapitalmanagementinfluenceoperatingandmarketriskoffirms
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Does Working Capital Management Influence Operating and Market Risk of Firms?

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