Title
QIdentification and Estimation of the Role of Internal Micro Level
Abstract
Pakistan is a developing country and for the accelerated growth of its economy an effective route is through proliferation and growth of commercial firms by enhancing their profitability. However, this requires reduction in the marginal cost of output of these firms. Therefore, the most important consideration is to find ways and means of reducing cost in the components of working capital. This thesis aims to look into firm-specific internal micro level factors that may impact the working capital efficiency of large scale manufacturing firms in Pakistan.
The study is empirical in nature and attempts to check working capital efficiency standards for firms of different sectors. In addition to this, economic effect of micro level factors on business performance is investigated. Working capital requirements, liquidity requirements, and working capital efficiency of business firms are examined on the basis of firm-specific internal micro level factors. All findings are based on an objective sample of 207 non-financial business firms listed on Karachi Stock Exchange from thirteen large scale manufacturing sectors of Pakistan. Reliable sources that are used for secondary data include State Bank of Pakistan, Ministry of Finance, Federal Bureau of Statistics, Business Recorder, websites of sampled firms, Trade Associations for some sectors etc.
The thesis relies on using fixed effect method after controlling multicollinearity, autocorrelation, hetroskedasticity, and misspecification biases. Firms of different sectors are found more inclined towards improving their business performance through the use of current assets. Few firms in a sector are found improving their efficiency standards and are in status-quo with respect to their working capital strategies. Cash conversion cycle and size of the firm are identified as some main firm-specific internal micro level factors having significant influence on business performance of firms in most of the sectors. Leverage, cash flows, and growth of the firm are found to significantly influence the working capital requirements of firms.
Liquidity needs of the firms are found to take significant influence of firms’ profitability, leverage, cash flows, and growth of the firm. It is observed that liquidity requirements and working capital requirements of business firms increase in poor economic conditions. A notable finding in the thesis is that receivables management, inventory management, cash conversion cycle, and firms’ growth have significant influence on the efficiency of working capital management in all economic sectors. This finding confirms that there exist internal micro level factors which impact the working capital efficiency of business firms.