Determinants of Working Capital Management Practices: Evidence from Pakistani Banks

Abstract

This study investigates the factors influencing working capital management practices across 27 Pakistani banks listed on the Pakistan Stock Exchange (PSX) from 2006 to 2014. By examining this period and focusing on the banking sector, the research aims to provide insights into the determinants shaping working capital management within the Pakistani banking industry. Adopting a time-series approach, the study utilizes secondary data sourced from the annual reports of all listed banks in Pakistan. Statistical analysis, specifically the Ordinary Least Squares (OLS) method, is employed to examine the impact of various factors on working capital management practices. These factors include profitability, firm size, leverage, asset tangibility, and sales growth. Through rigorous statistical evaluation, the study seeks to elucidate the relationships between these determinants and working capital management within the banking sector over the specified timeframe. The findings reveal significant relationships between profitability, firm size, and asset tangibility with working capital management practices. The analysis demonstrates a strong positive correlation between the dependent and independent variables, indicating that Pakistani banks have effectively managed their working capital. These results highlight the importance of profitability, firm size, and asset tangibility as key determinants influencing working capital management. Overall, the findings suggest that banks in Pakistan have demonstrated proficiency in optimizing their working capital resources to support operational activities and enhance financial performance. This study provides valuable insights for financial managers, policymakers, and stakeholders seeking to improve liquidity management and operational efficiency in the banking sector.