Determinants of Working Capital Requirement on Manufacturing Firms

Damot Alehegne; Endalachew Bekalu; Abatneh Mengist

doi:doi:10.11648/j.ebm.20190501.11

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Determinants of Working Capital Requirement on Manufacturing Firms

Damot Alehegne, Endalachew Bekalu, Abatneh Mengist

Received: 3 April 2019 Accepted: 21 May 2019 Published: 5 June 2019

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Abstract

Working capital investments are essential for daily business operations of an entity. For that matter firms make huge amounts of investments in working capital that enables them to pay recurring obligations. The main aim of this study is to investigate the determinants of working capital requirement of 35 large taxpayer manufacturing firms from food and beverage industry of Addis Ababa by employing explanatory research design with quantitative approach. Firms’ financial statements were collected for five years period from 2011 to 2015. Cash conversion cycle, return on asset, operating cash flow, leverage, firm size, growth rate, real GDP growth rate and inflation rate were used as an explanatory variables to measure the size or level of working capital requirement, and net working capital deflated by total asset were used as a dependent variable. Data was analyzed with the help of STATA (version 13) and, descriptive and correlation analysis and pooled panel data regression models of cross-sectional and time series data were employed. Results from the analysis revealed that there is statistically significant negative relationship between working capital requirement with leverage, firm size, real GDP growth rate and inflation rate. And there is positive and significant relationship between working capital requirements with cash conversion cycle.

DOI	10.11648/j.ebm.20190501.11
Published in	European Business & Management (Volume 5, Issue 1, January 2019)
Page(s)	1-6
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Working Capital Requirement, Manufacturing Firms, Food and Beverage, Addis Ababa

References

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[2]	Deloof, M. (2003). Does working capital management affect profitability of Belgian firms.
[3]	Afza T and MS Nazir (2007), Economic competitiveness and human resource development; Am FDI perspective, Pakistan economic and social review PP 167-80, Vol; 45.
[4]	Lamberson, M. (1995). Changes in Working Capital of Small Firms in Relation to Changes in Economic Activity. Mid-American Journal of Business, 10 (2), 45–50. http://dx.doi.org/10.1108/19355181199500015.
[5]	Filbeck and Krueger, (2005), An analysis of working capital management results across industries.
[6]	Raheman, A., & Nasr, M. (2007). Working capital management and profitability – case of Pakistani firms. International review of business research papers, 3 (1), 279 - 300.
[7]	Charitou, M. S., Elfani, M., & Lois, P. (2010). The Effect of Working Capital Management on Firm’s Profitability: Empirical Evidence From An Emerging Market. Journal Of Business & Economics Research, 8 (12), 63-68.
[8]	Enow & Brijlal (2014), The use of financial management practice by small, medium and micro enterprise; A perspective from South Africa.
[9]	Brigham, E. F., & Houston, J. F. (2009). Fundamentals of financial management (12th ed) Pearson, USA: South-Western Cengage Learning.
[10]	Suleiman, M, Rash, T. (2012). The determinants of working capital requirements in Palestine industrial corporation, International Journal of Economics and Finance; Vol. 5, No. 1; 2013.
[11]	[Azeem, M, & Marsap, A. (2015). Determinants factors and working capital requirement, International Journal of Economics and Finance.
[12]	Nazir, S, & Afza, T. (2009). Working capital requirements and the determing factors in Pakistan.
[13]	Adekunle, O. (2015). What are the determinants of working capital requirement of Nigerian firms, Research Journal of Finance and Accounting Vol. 6, No. 6, 2015.
[14]	Guzani, M, (2017). Financial determinants of corporate cash holding in an oil rich country: Evidenced from kingdom of Saudi Arabia.
[15]	Niskanen, J., & Niskanen, M. (2006). The Determinants of Corporate Trade Credit Polices in a Bank Dominated Financial Environment: The Case of Finnish Small Firms. European Financial Management.

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Damot Alehegne, Endalachew Bekalu, Abatneh Mengist. (2019). Determinants of Working Capital Requirement on Manufacturing Firms. European Business & Management, 5(1), 1-6. https://doi.org/10.11648/j.ebm.20190501.11

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ACS Style

Damot Alehegne; Endalachew Bekalu; Abatneh Mengist. Determinants of Working Capital Requirement on Manufacturing Firms. Eur. Bus. Manag. 2019, 5(1), 1-6. doi: 10.11648/j.ebm.20190501.11

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AMA Style

Damot Alehegne, Endalachew Bekalu, Abatneh Mengist. Determinants of Working Capital Requirement on Manufacturing Firms. Eur Bus Manag. 2019;5(1):1-6. doi: 10.11648/j.ebm.20190501.11

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@article{10.11648/j.ebm.20190501.11,
  author = {Damot Alehegne and Endalachew Bekalu and Abatneh Mengist},
  title = {Determinants of Working Capital Requirement on Manufacturing Firms},
  journal = {European Business & Management},
  volume = {5},
  number = {1},
  pages = {1-6},
  doi = {10.11648/j.ebm.20190501.11},
  url = {https://doi.org/10.11648/j.ebm.20190501.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ebm.20190501.11},
  abstract = {Working capital investments are essential for daily business operations of an entity. For that matter firms make huge amounts of investments in working capital that enables them to pay recurring obligations. The main aim of this study is to investigate the determinants of working capital requirement of 35 large taxpayer manufacturing firms from food and beverage industry of Addis Ababa by employing explanatory research design with quantitative approach. Firms’ financial statements were collected for five years period from 2011 to 2015. Cash conversion cycle, return on asset, operating cash flow, leverage, firm size, growth rate, real GDP growth rate and inflation rate were used as an explanatory variables to measure the size or level of working capital requirement, and net working capital deflated by total asset were used as a dependent variable. Data was analyzed with the help of STATA (version 13) and, descriptive and correlation analysis and pooled panel data regression models of cross-sectional and time series data were employed. Results from the analysis revealed that there is statistically significant negative relationship between working capital requirement with leverage, firm size, real GDP growth rate and inflation rate. And there is positive and significant relationship between working capital requirements with cash conversion cycle.},
 year = {2019}
}

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TY  - JOUR
T1  - Determinants of Working Capital Requirement on Manufacturing Firms
AU  - Damot Alehegne
AU  - Endalachew Bekalu
AU  - Abatneh Mengist
Y1  - 2019/06/05
PY  - 2019
N1  - https://doi.org/10.11648/j.ebm.20190501.11
DO  - 10.11648/j.ebm.20190501.11
T2  - European Business & Management
JF  - European Business & Management
JO  - European Business & Management
SP  - 1
EP  - 6
PB  - Science Publishing Group
SN  - 2575-5811
UR  - https://doi.org/10.11648/j.ebm.20190501.11
AB  - Working capital investments are essential for daily business operations of an entity. For that matter firms make huge amounts of investments in working capital that enables them to pay recurring obligations. The main aim of this study is to investigate the determinants of working capital requirement of 35 large taxpayer manufacturing firms from food and beverage industry of Addis Ababa by employing explanatory research design with quantitative approach. Firms’ financial statements were collected for five years period from 2011 to 2015. Cash conversion cycle, return on asset, operating cash flow, leverage, firm size, growth rate, real GDP growth rate and inflation rate were used as an explanatory variables to measure the size or level of working capital requirement, and net working capital deflated by total asset were used as a dependent variable. Data was analyzed with the help of STATA (version 13) and, descriptive and correlation analysis and pooled panel data regression models of cross-sectional and time series data were employed. Results from the analysis revealed that there is statistically significant negative relationship between working capital requirement with leverage, firm size, real GDP growth rate and inflation rate. And there is positive and significant relationship between working capital requirements with cash conversion cycle.
VL  - 5
IS  - 1
ER  -

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Author Information

Damot Alehegne

Department of Accounting and Finance, Raya University, Michew, Ethiopia
Endalachew Bekalu

Department of Accounting and Finance, Mekdela Amba Univrsity, Mekdela, Ethiopia
Abatneh Mengist

Department of Accounting and Finance, Jinka University, Jinka, Ethiopia

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APA Style

Damot Alehegne, Endalachew Bekalu, Abatneh Mengist. (2019). Determinants of Working Capital Requirement on Manufacturing Firms. European Business & Management, 5(1), 1-6. https://doi.org/10.11648/j.ebm.20190501.11

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ACS Style

Damot Alehegne; Endalachew Bekalu; Abatneh Mengist. Determinants of Working Capital Requirement on Manufacturing Firms. Eur. Bus. Manag. 2019, 5(1), 1-6. doi: 10.11648/j.ebm.20190501.11

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AMA Style

Damot Alehegne, Endalachew Bekalu, Abatneh Mengist. Determinants of Working Capital Requirement on Manufacturing Firms. Eur Bus Manag. 2019;5(1):1-6. doi: 10.11648/j.ebm.20190501.11

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@article{10.11648/j.ebm.20190501.11,
  author = {Damot Alehegne and Endalachew Bekalu and Abatneh Mengist},
  title = {Determinants of Working Capital Requirement on Manufacturing Firms},
  journal = {European Business & Management},
  volume = {5},
  number = {1},
  pages = {1-6},
  doi = {10.11648/j.ebm.20190501.11},
  url = {https://doi.org/10.11648/j.ebm.20190501.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ebm.20190501.11},
  abstract = {Working capital investments are essential for daily business operations of an entity. For that matter firms make huge amounts of investments in working capital that enables them to pay recurring obligations. The main aim of this study is to investigate the determinants of working capital requirement of 35 large taxpayer manufacturing firms from food and beverage industry of Addis Ababa by employing explanatory research design with quantitative approach. Firms’ financial statements were collected for five years period from 2011 to 2015. Cash conversion cycle, return on asset, operating cash flow, leverage, firm size, growth rate, real GDP growth rate and inflation rate were used as an explanatory variables to measure the size or level of working capital requirement, and net working capital deflated by total asset were used as a dependent variable. Data was analyzed with the help of STATA (version 13) and, descriptive and correlation analysis and pooled panel data regression models of cross-sectional and time series data were employed. Results from the analysis revealed that there is statistically significant negative relationship between working capital requirement with leverage, firm size, real GDP growth rate and inflation rate. And there is positive and significant relationship between working capital requirements with cash conversion cycle.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - Determinants of Working Capital Requirement on Manufacturing Firms
AU  - Damot Alehegne
AU  - Endalachew Bekalu
AU  - Abatneh Mengist
Y1  - 2019/06/05
PY  - 2019
N1  - https://doi.org/10.11648/j.ebm.20190501.11
DO  - 10.11648/j.ebm.20190501.11
T2  - European Business & Management
JF  - European Business & Management
JO  - European Business & Management
SP  - 1
EP  - 6
PB  - Science Publishing Group
SN  - 2575-5811
UR  - https://doi.org/10.11648/j.ebm.20190501.11
AB  - Working capital investments are essential for daily business operations of an entity. For that matter firms make huge amounts of investments in working capital that enables them to pay recurring obligations. The main aim of this study is to investigate the determinants of working capital requirement of 35 large taxpayer manufacturing firms from food and beverage industry of Addis Ababa by employing explanatory research design with quantitative approach. Firms’ financial statements were collected for five years period from 2011 to 2015. Cash conversion cycle, return on asset, operating cash flow, leverage, firm size, growth rate, real GDP growth rate and inflation rate were used as an explanatory variables to measure the size or level of working capital requirement, and net working capital deflated by total asset were used as a dependent variable. Data was analyzed with the help of STATA (version 13) and, descriptive and correlation analysis and pooled panel data regression models of cross-sectional and time series data were employed. Results from the analysis revealed that there is statistically significant negative relationship between working capital requirement with leverage, firm size, real GDP growth rate and inflation rate. And there is positive and significant relationship between working capital requirements with cash conversion cycle.
VL  - 5
IS  - 1
ER  -

Copy | Download