ARTICLE

IMPACT OF LOAN ACCESSIBILITY ON WORKING CAPITAL MANAGEMENT AND PROFITABILITY COMPARATIVE STUDY OF FAMILY VERSUS NON FAMILY FIRMS

  1. HOME
  2. ARTICLE

23 Pages : 220-230

http://dx.doi.org/10.31703/gssr.2020(V-I).23      10.31703/gssr.2020(V-I).23      Published : Mar 1

Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms

Abstract

    his study is conducted to identify the direction of the relationship between working capital management (WCM) and firm performance of the non-financial sector of Pakistan from 2009 till 2018. This has also looked at the effect of restricted access to loan on the WCM- Profitability relationship. The findings confirmed that restricted loan accessibility impacts the WCM-Profitability relationship. The comparative analysis demonstrated that financially constrained firms are mostly non-family firms that are new, growing, smaller in size, face high risk, maintain high liquidity and tangibility ratios than non-constrained firms. Further, the working capital levels of financially constraint firms is lower because of high operating expenses and greater capital rationing. Managers and scholars may use these findings for the administration of their working capital policies in order to avoid the financial cost and create more opportunities for financial accessibility which is further beneficial for making informed investment decisions, yielding higher profits that contribute towards sustainable growth.

    Financial Constraints, Working Capital Management, Firm Profitability, Investment Decisions, Loan Accessibility, Family Firms, Sustainable Growth

    (1) Kanwal Iqbal Khan
    Assistant Professor, Institute of Business & Management,University of Engineering and Technology, Lahore, Punjab, Pakistan.
    (2) Adeel Nasir
    Assistant Professor,Department of Management Sciences, Lahore College for Women University, Jail Road , Lahore, Punjab, Pakistan.
    (3) Aniqa Arslan
    Assistant Professor, Department of Management Sciences, Shaheed Benazir Bhutto University, Shaheed Benazirabad, Karachi, Pakistan.
Fulltext PDF

References

  • Abushammala, S. N., & Sulaiman, J. (2014). Cash holdings and corporate profitability: Some evidences form Jordan. International Journal of Innovation and Applied Studies, 8(3), 898- 907.
  • Afrifa Godfred, A., & Padachi, K. (2016). Working capital level influence on SME profitability. Journal of Small Business and Enterprise Development, 23(1), 44-63. doi:10.1108/JSBED-01-2014- 0014
  • Aguilera, R. V., & Crespi-Cladera, R. (2012). Firm family firms: Current debates of corporate governance in family firms. Journal of Family Business Strategy, 3(2), 66-69.
  • Aktas, N., Croci, E., & Petmezas, D. (2015). Is working capital management value-enhancing? Evidence from firm performance and investments. Journal of Corporate Finance, 30, 98-113.
  • Ali, S. (2011). Working capital management and the profitability of the manufacturing sector: A case study of Pakistan's textile industry. The Lahore Journal of Economics, 16(2), 141-178.
  • Altaf, N., & Shah, F. (2017). Working capital management, firm performance and financial constraints: Empirical evidence from India. Asia-Pacific Journal of Business Administration, 9(3), 206-219. doi:10.1108/APJBA-06-2017-0057
  • Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332- 338.
  • Bhatia, S., & Srivastava, A. (2016). Working capital management and firm performance in emerging economies: evidence from India. Management and Labour Studies, 41(2), 71-87.
  • Bhunia, A., & Das, A. (2015). Underlying relationship between working capital management and profitability of pharmaceutical companies in India. American journal of theoretical and applied business, 1(1), 27-36.
  • Campello, M., Graham, J. R., & Harvey, C. R. (2010). The real effects of financial constraints: Evidence from a financial crisis. Journal of financial Economics, 97(3), 470-487.
  • Chauhan Gaurav, S., & Banerjee, P. (2018). Financial constraints and optimal working capital - Evidence from an emerging market. International Journal of Managerial Finance, 14(1), 37- 53. doi:10.1108/IJMF-07-2016-0131
  • Dell'Ariccia, G., & Marquez, R. (2004). Information and bank credit allocation. Journal of financial Economics, 72(1), 185-214.
  • Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance & Accounting, 30(3-4), 573-588.
  • He, J., Mao, X., Rui, O. M., & Zha, X. (2013). Business groups in China. Journal of Corporate Finance, 22, 166-192.
  • Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? The quarterly journal of economics, 112(1), 169-215.
  • Kasiran, F. W., Mohamad, N. A., & Chin, O. (2016). Working capital management efficiency: A study on the small medium enterprise in Malaysia. Procedia Economics and Finance, 35, 297-303.
  • Khan, K. I., Qadeer, F., Mahmood, S., & Rizavi, S. S. (2017). Reasons of debt specialization: understanding the perspectives of small and large organizations. The Lahore Journal of Business, 6(1), 93-110.
  • Korent, D., & Orsag, S. (2018). The impact of working capital management on profitability of Croatian software companies. Zagreb International Review of Economics and Business, 21(1), 47-66.
  • Koumanakos Dimitrios, P. (2008). The effect of inventory management on firm performance. International Journal of Productivity and Performance Management, 57(5), 355-369. doi:10.1108/17410400810881827
  • Lu, J., & Wang, W. (2018). Managerial conservatism, board independence and corporate innovation. Journal of Corporate Finance, 48, 1-16.
  • Maditinos, D., Tsinani, A., Sevic, Z., & Stankeviciene, J. (2019). Financially constrained firms: The impact of managerial optimism and corporate investment-The Case cf Greece. European Research Studies Journal, 22(1), 3-15.
  • Malik, M. S., & Bukhari, M. (2014). The impact of working capital management on corporate performance: A study of firms in cement, chemical and engineering sectors of Pakistan. Pakistan Journal of Commerce and Social Sciences, 8(1), 134-148.
  • Muscettola, M. (2014). Cash conversion cycle and firm's profitability: An empirical analysis on a Sample of 4,226 Manufacturing SMEs of Italy. International Journal of Business and Management, 9(5), 25-35.
  • Nguyen, T., Nguyen, L. T., Ngo, A. D., & Adhikari, H. (2018). CEO optimism and the credibility of open-market stock repurchase announcements. Journal of Behavioral Finance, 19(1), 49-61.
  • Nobanee, H., Abdullatif, M., & AlHajjar, M. (2011). Cash conversion cycle and firm's performance of Japanese firms. Asian Review of Accounting, 19(2), 147-156.
  • Park Jin, H., Park, K., & Ratti Ronald, A. (2018). Controlling shareholders and financial constraints around the world. Managerial Finance, 44(1), 92-108. doi:10.1108/MF-08-2016-0228
  • Prasad, P., Sivasankaran, N., & Shukla, A. (2019). Impact of deviation from target working capital on firm profitability: Evidence from India. International Journal of Productivity and Performance Management, 68(8), 1510-1527. doi:10.1108/IJPPM-11-2018-0407
  • Pratap Singh, H., & Kumar, S. (2014). Working capital management: A literature review and research agenda. Qualitative Research in Financial Markets, 6(2), 173-197. doi:10.1108/QRFM-04- 2013-0010
  • Rahman, S. U., Iqbal, K., & Nadeem, A. (2019). Effect of Working Capital Management on Firm Performance: The Role of Ownership Structure. Global Social Sciences Review, 4(1), 108- 119.
  • Samiloglu, F., & Demirgunes, K. (2008). The effect of working capital management on firm profitability: Evidence from Turkey. The International journal of applied Economics and Finance, 2(1), 44-50.
  • Schauer, C., Elsas, R., & Breitkopf, N. (2019). A new measure of financial constraints applicable to private and public firms. Journal of Banking & Finance, 101, 270-295.
  • Sharma, R. K., Bakshi, A., & Chhabra, S. (2020). Determinants of behaviour of working capital requirements of BSE listed companies: An empirical study using co-integration techniques and generalised method of moments. Cogent Economics & Finance, 8(1), 1-30. doi:10.1080/23322039.2020.1720893
  • Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of political economy, 94(3, Part 1), 461-488.
  • Singhania, M., & Mehta, P. (2017). Working capital management and firms' profitability: Evidence from emerging Asian countries. South Asian Journal of Business Studies, 6(1), 80-97. doi:10.1108/SAJBS-09-2015-0060
  • Soukhakian, I., & Khodakarami, M. (2019). Working capital management, firm performance and macroeconomic factors: Evidence from Iran. Cogent Business & Management, 6(1), 1-24. doi:10.1080/23311975.2019.1684227
  • Tauringana, V., & Adjapong Afrifa, G. (2013). The relative importance of working capital management and its components to SMEs' profitability. Journal of Small Business and Enterprise Development, 20(3), 453-469. doi:10.1108/JSBED-12-2011-0029
  • Tran, H., Abbott, M., & Jin Yap, C. (2017). How does working capital management affect the profitability of Vietnamese small- and medium-sized enterprises? Journal of Small Business and Enterprise Development, 24(1), 2-11. doi:10.1108/JSBED-05-2016-0070
  • Ullah, A., & Khushnood, M. (2019). Working capital and fixed investment effect on sales growth in SAARC countries' SMEs. Global Social Sciences Review, 4(1), 184-195.
  • Uyar, A. (2009). The relationship of cash conversion cycle with firm size and profitability: An empirical investigation in Turkey. International Research Journal of Finance and Economics, 24(2), 186-193.
  • Whited, T. M., & Wu, G. (2006). Financial constraints risk. The Review of Financial Studies, 19(2), 531-559.
  • Zhang, D., Tong, Z., & Li, Y. (2020). The role of cash holding towards cleaner production in China's manufacturing sectors: A financial constraint perspective. Journal of Cleaner Production, 245, 118875. doi: https://doi.org/10.1016/j.jclepro.2019.118875

Cite this article

APA

    APA : Khan, K. I., Nasir, A., & Arslan, A. (2020). Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms. Global Social Sciences Review, V(I), 220-230. https://doi.org/10.31703/gssr.2020(V-I).23

CHICAGO

    CHICAGO : Khan, Kanwal Iqbal, Adeel Nasir, and Aniqa Arslan. 2020. "Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms." Global Social Sciences Review, V (I): 220-230 doi: 10.31703/gssr.2020(V-I).23

HARVARD

    HARVARD : KHAN, K. I., NASIR, A. & ARSLAN, A. 2020. Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms. Global Social Sciences Review, V, 220-230.

MHRA

    MHRA : Khan, Kanwal Iqbal, Adeel Nasir, and Aniqa Arslan. 2020. "Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms." Global Social Sciences Review, V: 220-230

MLA

    MLA : Khan, Kanwal Iqbal, Adeel Nasir, and Aniqa Arslan. "Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms." Global Social Sciences Review, V.I (2020): 220-230 Print.

OXFORD

    OXFORD : Khan, Kanwal Iqbal, Nasir, Adeel, and Arslan, Aniqa (2020), "Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms", Global Social Sciences Review, V (I), 220-230

TURABIAN

    TURABIAN : Khan, Kanwal Iqbal, Adeel Nasir, and Aniqa Arslan. "Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms." Global Social Sciences Review V, no. I (2020): 220-230. https://doi.org/10.31703/gssr.2020(V-I).23