Working Capital Management and Corporate Performance: Evidence from Sri Lankan Listed Manufacturing Firms

Ratnam Vijayakumaran, Sunitha Vijayakumaran

Abstract


Working capital that represents a significant portion of a firm’s total assets affects its profitability and liquidity. This study examines the performance effects of working capital management using a panel of listed manufacturing companies on the Colombo Stock Exchange (CSE) over the period 2011 to 2016. Controlling for unobservable firm specific heterogeneity and a set of observable firm characteristics, we document that working capital is non-linearly (inverted U-shaped) related to firm profitability. This indicates the existence of an optimal level of working capital that balances the costs and benefits of maintaining working capital, and maximizes firm’s performance.


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DOI: https://doi.org/10.5296/ijafr.v7i2.12453

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Copyright (c) 2017 Ratnam Vijayakumaran, Sunitha Vijayakumaran

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International Journal of Accounting and Financial Reporting  ISSN 2162-3082

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