Impact of Working Capital on Corporate Performance in Seasonal and Non-Seasonal Industries: Evidence from Pakistan

Abstract

The study examines the impact of working capital on corporate performance in the seasonal and non-seasonal industries of Pakistan. The five selected industries comprising a sample of 137 companies have been studied and five years of secondary data have been collected for analysis. These industries have been selected based on their unique characteristics with regard to inventories, receivables, and payables and due to the fact that these industries form a significant part of the overall economy of the country. Textile and sugar are seasonal industries based on cotton and sugar cane crops which are available for a limited period and hence bulk purchase and huge inventories are required to meet yearlong market requirements as chemical, pharmaceutical, cement, and manufacturing are non-seasonal industries where no such crop limitation or inventory buildup is required. The study suggests a significant positive relationship between working capital and profitability in seasonal (textile and sugar) industries. The study also finds a negative but significant relationship between working capital and profitability in the chemical industry. However, the study finds an insignificant relationship between working capital and profitability in the chemical and engineering industry. Moreover, the study suggests that there is a significant difference in the relationship between working capital and profitability across industries. The research findings are expected to be useful for the senior management, managers as well as practitioners in the area of investment decision-making.