The impact of capital investment on working capital management

Abstract

This study investigates the impact of capital investment (CI) on net liquidity balance (NLB) as well as working capital requirement (WCR) that measures working capital management (WCM) in Malaysia‟s technology sector. It is contended among the financial researchers that WCM effectiveness could be increased through wise decision and monitoring of the CI. CI offers organization enormous opportunity and benefit to increase the future profitability and capitalize the growth opportunities. However, the previous literatures have not adequately addressed the dependency of NLB and WCR on CI in Malaysia, especially technology sector. Technology sector activity receives strong support and encouragement from government agencies which at the same encounter funding limitations. The objectives of the study were addressed based on panel data collected from annual financial reports of technology sector firms in Malaysia which are listed on the main board of Bursa Malaysia covering from the year 2007 to 2011. First, the study suggests that CI and WCM have negative relationship that contributes to the existing study based on liquidity-profitability theory. Second, the findings demonstrate that NLB is negatively dependent on CI since technology firms has high tendency on operating the WCR. Finally, positive impact of CI on WCR signifies that firms with CI promotes more on WCR to ascertain the firm‟s liquidity level and simultaneously create value from liquid assets. The finding indicates that WCM is dependent on CI in Malaysia‟s technology sector as short-term financial management is a result of long-term investment decision. Practical implications suggested that understanding on the impact of CI on WCM in the technology sector in Malaysia will enlighten the financial manager‟s burden during the decision making process between WCR and NLB. This eventually contributes to the nation‟s growth by means of CI to capitalize future profitability in the technology sector.