Asian Research Thesis Index

Abstract

The current study has its focus on investigating the relationship between working capital management and profitability of Pakistani and Indian firms. In order to measure the profitability, ROA and ROE has been chosen as proxies for dependent variable, while current ratio (Cr), quick ratio (Qr), accounts receivable turnover (ARCTR), inventory turnover in days (INVTR), accounts payable turnover (APTR), assets turnover (ATR) and cash conversion cycle (CCC) have been utilized as independent variables. The same set of dependent and independent variables are selected for Indian firms as well. The focus of the study is pharmaceutical and chemical sectors of both these countries. Forty-two companies each from India Pakistan are selected and the data from 2008 – 2012 has been collected. QR, ARCTR, INVTR and CCC are statistically, significant and positively related with ROA of the Pakistani firms while APTRD is statistically, significant and negatively related with ROA. In the same line, ATR is statistically, insignificant and inversely related with ROA. While, CR is statistically insignificant and positively related with ROA. It has been observed that ATR, CR, ARCTR, are statistically, insignificant and positively related with ROE, while, QR, INVTR and CCC are statistically significant and positively related with ROE of Pakistani firms. In Indian firms, Cr, Qr, CCC, INVTR, and ARCTR are statistically, significant and positively related with ROA, while APTR is statistically, insignificant and Inversely related with both ROA and ROE. The relationship with ROE is same except that of CCC and Cr are found to be insignificant. In addition, there is statistically significant mean difference between the working capital management in Pakistan and India. The outcome of the study can be deployed by policy makers, financial analysts and financial managers.

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