Actors Influencing Corporate Working Capital Management: Evidence from an Emerging Economy

Journal of Contemporary Issues in Business Research FACTORS INFLUENCING CORPORATE WORKING CAPITAL MANAGEMENT: EVIDENCE FROM AN EMERGING ECONOMY KAMAL NASER1, RANA NUSEIBEH2 and AHMED AL-HADEYA3 ABSTRACT The main purpose of this study is to explore factors that influence working capital management by non-financial companies listed on Abu Dhabi Securities Exchange. The cash conversion cycle is used to proxy working capital management where short cycle implies effective management. Six factors frequently employed in previous research were used to explain variations in cash conversion cycle. The factors included industry type, sales growth, operating cash flows, return on equity, leverage and size. The latest annual reports for all non-financial companies listed on Abu Dhabi Securities Exchange and operate in the UAE were used to achieve the purpose of the study. The result of the analysis revealed that the effectiveness of working capital management of the companies covered in the study are influenced by sales growth, size and the level of corporate leverage. INTRODUCTION Working capital is a financial measure used to assess corporate liquidity. Reasonable working capital should be available to any firm to ensure that it has sufficient funds to cover its short-term obligations and to pay for future operating expenses. This guarantees the continuity of the firm’s operations. In fact, it is possible to see a profitable firm forced out of business due to inability to meet its short- term obligations when they fall due. It is therefore vital for any firm to manage its working capital successfully to ensure continuity. In the last few years, several studies have been undertaken to investigate factors affecting corporate working capital. Most of the studies examined the relationship between corporate working capital and profitability (see for example: Hayajneh and Yassine, 2011; Sabri, 2012; Gill et al., 2010; Dong and Su, 2010; Boisjoly, 2009; Falope and Ajilore, 2009;