EFFECT OF WORKING CAPITAL MANAGEMENT ON FINANCIAL PERFORMANCE OF FIRMS LISTED IN PAKISTAN STOCK EXCHANGE

Rabia Ramzan; Muhammad Mohtashim Sohail Chaudary; Muhammad Rashid Ali; Haris Jamil Bhatti; Fatima Mahmood

doi:10.59075/jsrd.v7i6.617

Authors

Rabia Ramzan UE Business School, Division of Management & Administrative Sciences, University of Education Lower Mall Campus, Lahore.
Muhammad Mohtashim Sohail Chaudary UE Business School, Division of Management & Administrative Sciences, University of Education Lower Mall Campus, Lahore.
Muhammad Rashid Ali Institute of Business Studies, Faculty of Administrative and Management Sciences, Government College Women University Sialkot.
Haris Jamil Bhatti Management Studies Department, Government College University Lahore Pakistan.
Fatima Mahmood University of The Punjab Quaid-e-Azam Campus Canal Bank Road, Lahore Pakistan.

DOI:

https://doi.org/10.59075/jsrd.v7i6.617

Keywords:

Working capital; Profitability; Panel data econometrics; Pakistan Stock Exchange; Liquidity preference theory.

Abstract

This study aims at examining the short-term resource allocation in publicly traded manufacturing firms of Pakistan in terms of an integrated panel data system with a five-pronged independent construct model. A balanced panel system involving 30 firms listed on the Pakistan Stock Exchange (PSX) during 2021 to 2025 is analyzed in terms of 150 firm year observations with complete Fixed Effects (FE) and Random Effects (RE) matrix models. The standard econometric model is justified and the structural analysis is derived from the estimation results. The regression models are statistically significant throughout and it is found that the overall current ratio is the sole dominating determinant of accounting profitability (ROA and ROE). Otherwise, transaction statistics on a daily basis, such as inventory days, days receivable, and days payable, exhibit statistical neutrality in the multi-variate analysis framework. This study demonstrates a purposeful defensive operating policy, which generates a negative average cash conversion cycle of -13.50 days. So, the combination of quick collection periods along with long deferral periods of payments to suppliers creates a free financing mechanism in the supply chain.