The study of (Shin & Soenen, 1998) consistent with later study on the same objective that done by (Deloof, 2003) by using sample of 1009 large Belgian non-financial firms for the period of 1992-1996. However, (Deloof, 2003) used trade credit policy and inventory policy are measured by number of days accounts receivable, accounts payable and inventories, and the cash conversion cycle as a comprehensive measure of working capital management. He founds a significant negative relation between gross operating income and the number of days accounts receivable, inventories and accounts payable. Thus, he suggests that managers can create value for their shareholders by reducing the number of days accounts receivable and inventories to a reasonable minimum. He also suggests that less profitable firms wait longer to pay their bills.
中小学信息技术电子作品综合评价系统使用分析 In other study, (Lyroudi & Lazaridis, 2000) use food industry Greek to examined the cash conversion cycle (CCC) as a liquidity indicator of the firms and tries to determine its relationship with the current and the quick ratios, with its component variables, and investigates the implications of the CCC in terms of profitability, indebtness and firm size. The results of their study indicate that there is a significant positive relationship between the cash conversion cycle and the traditional liquidity measures of current and quick ratios. The cash conversion cycle also positively related to the return on assets and the net profit margin but had no linear relationship with the leverage ratios. Conversely, the current and quick ratios had negative relationship with the debt to equity ratio, and a positive one with the times interest earned ratio. Finally, there is no difference between the liquidity ratios of large and small firms.
DATA AND VARIABLES
Data of this study is obtained from DataStream database which consists of financial statements listed firms in Bursa Malaysia. The sample was constructed as follows. Firms must be available during study period of year 1996 to year 2006. Because of the specific nature of their activities, firms in economic sector of Finance are excluded from the sample. Some firms with missing data were also removed. To analyse the effect of working capital management on economic rector, thus, economic sectors that have less than 10 firms were also removed from the sample. Thus a balanced panel set of 1628 firm-year observations was obtained, with observations of 148 firms over 1996-2006 periods. Table 1 shows the sample distribution by type of economic sector. Numbers of firms for each economic sector are not balance. Sector of Industrial Product is the major sample with 40 firms while the least is sector of property with 11 firms.
Table 1: Sample Distribution for Year 1996-2006
Economic Sector
No. of Firms
Construction 12
Consumer Product 28
Industrial Product 40
Plantation 18
Property 11
Trade/Service 39
Total 148
In order to analyze the effects of working capital management on the firm's profitability, (operating income + depreciation)/total asset (OI) as measure of profitability was used as the dependent variable. With regards to the independent variables, working capital management was measured by cash conversion cycle (CCC). CCC focuses on the length of time between when a firm makes payment and when firm receives cash inflow. The lower the value is better due to reveal that firm has high liquidity which easily converts its short term investment in current asset to cash. However, longer value of CCC indicate greater investment in current assets, and hence the greater the need for financing of current assets. CCC is calculated as the number of days accounts receivable (AR) plus the number of days of inventory (INV) minus the number of days accounts payable (AR).
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