Impact of Working Capital Management Practices on Firm Value

Abstract

This research study investigated the impact of Working Capital Management Practices (WCMP) on firm value in Sri Lankan companies. Data were gathered from a sample of 74 companies listed in the Colombo Stock Exchange covering seven business sectors for period of 2005 to 2009. Firms? Aggressive Working Capital Management Practice (AWCMP), Moderative Working Capital Management Practice (MWCMP) and Conservative Working Capital Management Practice (CWCMP) were used as independent variables. Firm value measured in terms of Market Value Added (MVA) and Economic value Added (EVA) was employed as dependent variable in the study. The panel regression analysis was employed. The results indicate that there is a statistically significant negative relationship between CWCMP and MVA and it further explains the firms that follow MWCMP yield higher MVA than the firms with CWCMP. Similarly, it indicates that there is a significant negative relationship between AWCMP and EVA, providing further evidence that the firms with AWCMP generate lower EVA than that of the firms with MWCM. Accordingly, the results conclude that the firms following MWCMP improved both MVA and EVA of the firms in Sri Lanka.