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The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms

Prabahkaran, Narayanan (2014) The moderating effect of cost of capital on the relationship between working capital management and financial health in selected Malaysian public listed firms. DBA thesis, Universiti Utara Malaysia.

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Abstract

Working capital management policies have been touted as key to influencing a firm’s operational and overall financial well-being. In this study involving Malaysian firms in the trading, services and consumer sectors, working capital management policies were categorized by its short-term asset investment policy, its short-term asset financing policy and its efficiency in managing its working capital. Using panel data analysis, the fixed effects model reveals that among the three working capital metrics, only a firm’s short-term asset financing policy’s relationship with financial health was moderated by its cost of capital. The study provides empirical evidence that when a firm’s cost of capital increases, the negative relationship between its short-term asset financing policy and its financial health seems to weaken. However, cost of capital does not play a moderating role on the effects of a firm’s other working capital policies (short-term asset investment policy and working capital management efficiency) on financial health. The study also provides empirical evidence that cost of capital has little to do with a firm’s financial health. This study has implications on both theoretical and managerial perspectives. From a theoretical perspective, since a firm’s working capital components are considered important resources, the findings imply that working capital policies seem to significantly affect financial health. From a managerial perspective, moderator analysis helps finance managers make decisions on working capital policy matters. More specifically, when a firm’s cost of capital becomes higher, the negative impact of its aggressive short-term asset financing policy on financial health is now reduced. In other words, its management can advocate an aggressive short-term asset financing policy since its negative impact is now lessened

Item Type: Thesis (DBA)
Uncontrolled Keywords: Cost of capital; moderating effects; working capital management; financial health; panel data analysis
Subjects: H Social Sciences > HG Finance
Divisions: Othman Yeop Abdullah Graduate School of Business
Depositing User: Mr. Badrulsaman Hamid
Date Deposited: 12 Oct 2015 07:07
Last Modified: 17 Apr 2016 07:36
URI: http://etd.uum.edu.my/id/eprint/4974

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