Effect of working capital policies on firms’ financial performance

Figures & data

Table 1. Definitions of the model’s variables

Variable	Definition
OI	Operating income
WCIP	Working capital investment policy
CWCFP	Dummy conservative working capital financing policy
AWCFP	Dummy aggressive working capital financing policy
SIZE	Natural logarithm of total sales
DR	Debt ratio
β0	The intercept of the equation.
β1 … β5	The change coefficient for the variables.
e	Error term.

Table 2. Descriptive statistics

	Mean	St. Dev.	Min	Max
OI	0.06	0.20	−3.88	0.65
WCIP	0.47	0.21	0.01	0.95
WCFP	−0.12	0.52	−3.91	7.52
DR	0.18	0.15	0	0.63
SIZE	1.60	4.38	0.004	47.6

Notes: OI represents operating income. WCIP is measured by the current asset to total asset ratio. WCFP is measured by the variance between temporary working capital and short-term debts (in billions of Malaysian Ringgit). DR is a firm’s debt ratio. SIZE is a firm size in terms of the total sales (in billions of Malaysian Ringgit).

Table 3. Results of the model using FGLS regression estimation (when MWCFP is the reference category of WCFP)

OI	Coef.	St.Err	t-value	p-value	Sig.
WCIP	−0.079	0.012	−6.3	0	***
CWCFP	0.092	0.011	8.13	0	***
AWCFP	0.005	0.007	0.76	0.449
SIZE	0.031	0.004	8.22	0	***
DR	−0.203	0.02	−10.3	0	***
_cons	−0.033	0.021	−1.59	0.112
Mean dependent var	0.073	SD dependent var			0.105
Number of obs	1470	Chi-square			307.788
Prob > chi2	1	Akaike crit. (AIC)			−2726.607

*** p < 0.01, ** p < 0.05, * p < 0.1

Table 4. Results of the model using FGLS regression estimation (when AWCFP is the reference category of WCFP)

OI	Coef.	St.Err	t-value	p-value	Sig.
CATA	−0.079	0.012	−6.3	0	***
CWCFP	0.087	0.011	7.74	0	***
MWCFP	−0.005	0.007	−0.76	0.449
SIZE	0.031	0.004	8.22	0	***
DR	−0.203	0.02	−10.3	0	***
_cons	−0.028	0.021	−1.36	0.175
Mean dependent var	0.073	SD dependent var			0.105
Number of obs	1470	Chi-square			307.788
Prob > chi2	1	Akaike crit. (AIC)			−2726.607

*** p < 0.01, ** p < 0.05, * p < 0.1

Table 5. Results of the model using FGLS regression estimation (when CWCFP is the reference category of WCFP)

OI	Coef.	St.Err	t-value	p-value	Sig.
CATA	−0.079	0.012	−6.3	0	***
AWCFP	−0.087	0.011	7.74	0	***
MWCFP	−0.092	0.011	−8.13	0	***
SIZE	0.031	0.004	8.22	0	***
DR	−0.203	0.02	−10.3	0	***
_cons	0.059	0.023	2.6	0.009	***
Mean dependent var	0.073	SD dependent var			0.105
Number of obs	1470	Chi-square			307.788
Prob > chi2	1	Akaike crit. (AIC)			−2726.607

*** p < 0.01, ** p < 0.05, * p < 0.1