Determinants of working capital requirement in listed firms: Empirical evidence using a dynamic system GMM

Figures & data

Table 1. Industry composition

Industry	Mining and oil	Manufacturing	Health	Financial services	Goods and services	Total
Number of firms	3	10	2	10	3	28

Table 2. Definitions of variables

Variables	Code	Definition
Dependent variables
Y Working capital ratio	WCR	It is defined as working liquid assets less working liquid liabilities. It is calculated as [(Current Assets)- (Current Liabilities)]/Total Assets
Independent variables
X1 Size	SIZE	This is defined as the natural log of Total Assets
X2 Sales growth	SGR	It is the annual percentage change in sales. It is calculated as (Total Salest—total Salest-1)/total Salest-1
X3 Profitability	ROA	It is the return on assets. It is calculated as Profit before Interest and Tax divided by Total Assets
X4 Leverage	LEV	It is calculated as total debt/(total debt + total equity)
X5 Economic activities	GDP	This refers to the change in natural log of GDP
X6 Operating cycle	OC	This is the sum of days in inventory and days in accounts receivables. It is calculated as inventory conversion period (ICP) + Receivables Conversion Period (RCP). Where ICP = (Average inventory/Annual Cost of goods sold) *365 RCP = (Average Accounts Receivables/Annuals Sales) *365

Table 3. Levin, Lin and Chu panel unit root test results

Variable	T. Statistics	p-Value	Status
WRC	209.3137	0.0000	1^st Difference
SGR	274.4842	0.0000	Level
ROA	168.9374	0.0000	1^st Difference
LEV	153.5048	0.0000	Level
GDPG	122.1000	0.0000	1^st Difference
Logsize	218.0126	0.0000	Level
Logoc	209.3137	0.0000	1^st Difference

Table 4. Descriptive statistics

Variable	Obs.	Mean	Std. Dev.	Min	Max
WCR	223	−0.096	1.378	−20.167	0.681
Log (SIZE)	224	12.315	2.629	5.778	21.001
SGR	196	0.231	0.677	−1.000	7.558
ROA	223	0.019	0.214	−2.533	0.390
LEV	223	0.513	0.947	0.000	13.173
GDPG	224	7.504	3.223	3.992	15.009
Log OC	215	5.366	1.799	2.001	10.396

Table 5. Correlation matrix

	WCR	SIZE	SGR	ROA	LEV	GDPG	OC
WCR	1.000
CCC	0.028
SIZE	0.008	1.000
SGR	0.005	0.003	1.000
ROA	0.822*	0.039	−0.001	1.000
LEV	−0.932*	−0.018	0.068	−0.816*	1.000
GDPG	0.068	−0.020	−0.008	0.101	−0.061	1.000
OC	0.015	−0.006	0.073	−0.066	0.094	0.054	1.000

Table 6. System GMM regression results for all firms.

Independent variables	(1)WCR	(2)WCR
L.WCR	1.581***	0.359***
	(0.133)	(0.0834)
Log of size	0.436***	0.0492***
	(0.0606)	(0.0174)
SGR	−0.0425**	−0.00878
	(0.0170)	(0.0130)
ROA	4.709***
	(0.205)
GDPG	−0.0127***	0.00166
	(0.00307)	(0.00122)
Log of OC	0.362***	0.0526***
	(0.0118)	(0.0103)
LEV		−1.415***
		(0.0104)
Constant	−7.458***	−0.249
	(0.756)	(0.202)
Waldχ^2	7035.90[0.000]	50417.11[0.000]
Sargan Test:
Prob> χ^2	0.2996	0.3920
AR(1) p-value	0.3149	0.1171
AR(2) p-value	0.9580	0.2995
Observations	156	156
Number of firm	28	28

Standard errors in parentheses

*** p < 0.01, ** p < 0.05, * p < 0.1

Table 7. System GMM regression results for manufacturing firms only.

Independent variables	(1)WCR	(2)WCR
L.WCR	2.509*	−0.130
	(1.487)	(0.489)
Log of size	0.903**	0.156
	(0.432)	(0.313)
SGR	0.163	−0.0796
	(0.201)	(0.0690)
ROA	5.216***
	(0.414)
GDPG	0.0233	0.00222
	(0.0175)	(0.00716)
Log of OC	0.172*	0.00568
	(0.101)	(0.0536)
LEV		−1.489***
		(0.0525)
Constant	−10.58***	−1.330
	(3.989)	(3.162)
Waldχ^2	489667.23[0.000]	2.47e+06[0.000]
Sargan Test:
Prob> χ^2	0.9986	0.9948
AR(1) p-value	0.5537	0.5506
AR(2) p-value	0.1372	0.8883
Observations	56	56
Number of firm	10	10

Standard errors in parentheses

*** p < 0.01, ** p < 0.05, * p < 0.1