The impact of working capital management on firm performance across bumiputera and non bumiputera manufacturing firms in Malaysia

Abstract

Working Capital Management (WCM) plays a vital role in companies' both operational and financial decisions. WCM refers to all strategies adopted by the company to manage its short-term assets and short- term liabilities with the objective to ensure that it continues with its operations and meet its debt obligations when they fall due. There is lack of study being conducted on the effect of WCM on the profitability of firms in Malaysia, especially in manufacturing sector. Therefore, this study aims to investigate the relationship and the impact of WCM on firm performance across Bumiputera and Non-Bumiputera manufacturing firms in Malaysia. The analysis of panel data is conducted on sample size of 40 listed manufacturing firms from 2009 until 2018. This study employed descriptive statistics, correlation analysis and Pooled Ordinary Least Squares (OLS) to test the effect of inventory days, account receivable days, and account payable days (independent variable) on firm performance measured by return on assets (ROA). The findings show that there is significant negative relationship between inventory days and account receivable days on firm performance. While, account payable days shows an insignificant impact for both manufacturing firms and negative relationship on bumiputera firm performance and positive relationship on non-bumiputera firm performance. For future research, it is suggested that new the impact of WCM on firm performance in other sector in Malaysia can be measured.