ISSN: 2225-8329
Open access
Despite the importance of managing the working capital effectively, research on this area is still meagre. The company has an option to either adopt a conservative or aggressive working capital management policy. However, what drives them to either use conservative or aggressive working capital policy remains unclear. By segregating into conservative and aggressive working capital management, the study provides better insight as to the motives for companies to do so. Thus, this paper intends to examine the driving factors leading companies in the Trading and Services sector to adopt conservative and aggressive working capital policies. Using secondary data, the study runs panel regression models over seven years from 2001 until 2017 on the companies of the trading and service sector. The identified independent variables are age, free cash flow, growth rate, leverage, profitability and size. Empirically findings reveal that all the identified independent variables are the determinants for adopting conservative working capital investment policy (CWCIP). Only leverage appears to affect the working capital management policies and is negatively related. In essence, there appear to be no specific dominant factors affecting the companies to adopt conservative or aggressive working capital investment and financing policy. Furthermore, it seems that the trading and services companies practice a targeted conservative/aggressive investment and financing policies since the lagged dependent variables are positive and statistically significant. This paper extends the existing growing but dearth literature on the determinants of working capital investment and financing policies. In addition, the results may be of interest to managers who are interested to understand the rationale for adopting a specific working capital policy. Future research should investigate the impact of working capital investment and financing policies on company performance and firm values. In addition, more research could be done to examine whether the industry effect influences the adoption of working capital investment and financing policies taken.
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In-Text Citation: (Ahmad et al., 2021)
To Cite this Article: Ahmad, N., Isahak, M. S., & Rahim, F. A. (2021). Determinants of Working Capital Investment and Financing Policy: Evidence from Trading and Service Sector in Malaysia. International Journal of Academic Research in Accounting Finance and Management Sciences, 11(3), 500–522.
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