The Impact of Working Capital Management on Shareholder Wealth: Evidence from Frontier Market

Ratnam Vijayakumaran

Abstract


In finance, the effective Working Capital Management (WCM) plays an important role in increasing shareholder wealth. This study investigates the impact of working capital management on shareholder wealth, using a sample of companies listed on the Colombo Stock Exchange (CSE) from 2010 to 2015. The CSE is currently recognized as the high growth frontier market (FM) in the world.  The efficiency of WCM is measured using the Cash Conversion Cycle (CCC) and its components and shareholder wealth is measured by the Tobin Q ratio. The firm size, leverage and earnings yield are used as the controlling variables. The study uses panel data regression models in addition to the pooled OLS models. The results show that CCC is inversely related to Tobin Q, suggesting that efficient working capital management improves the shareholder wealth.




DOI: https://doi.org/10.5296/ajfa.v9i2.12449

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