Determinants of Working Capital Management Practices: Evidence from Pakistani Banks

Abstract

This study was to investigate the factors influencing working capital management practices across 27 Pakistani banks listed on the Pakistan Stock Exchange (PSX) over the period spanning from 2006 to 2014. By examining this timeframe and focusing on the specific banking sector, the study sought to gain insights into the determinants that shape the management of working capital within the Pakistani banking industry. This study adopts a time-series approach, utilizing secondary data sourced from the annual reports of all listed banks in Pakistan. The research focuses on employing statistical analysis, specifically the Ordinary Least Squares (OLS) method, to examine the influence of various factors on working capital management practices. These factors include profitability, firm size, leverage, asset tangibility, and sales growth. Through rigorous statistical analysis, the study aims to elucidate the relationships between these factors and the management of working capital within the banking sector over the specified time period. The findings of the study reveal significant relationships between profitability, firm size, and asset tangibility with working capital management practices among the banks in Pakistan. The analysis demonstrates a strong and positive correlation between the dependent and independent variables, indicating that the banking sector in Pakistan has been adept at managing its working capital in an efficient and effective manner. These results underscore the importance of profitability, firm size, and asset tangibility as key determinants influencing the management of working capital within the Pakistani banking industry. Overall, the findings suggest that banks in Pakistan have demonstrated proficiency in optimizing their working capital resources to support their operational activities and enhance their financial performance.