The Moderating Effect of Working Capital Management on the Relationship between Working Capital Determinants and Firm Performance

  • Ahmad Rizal Mazlan School of Economics, Finance and Banking, Universiti Utara Malaysia
  • Choong Yuen Leng Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia
Keywords: Working Capital Management, Working Capital Requirement, Net Liquid Balance, Moderation


This research examines working capital management moderating role on the relationship between the key determinants of working capital and firm performance among 282 public-listed manufacturing firms in Malaysia for the period of 2010 to 2014. In this study, working capital management components are categorized into working capital requirement and net liquid balance. The evidence suggests that the relationship between critical determinants of working capital and firm performance is moderated by both working capital requirement and net liquid balance. Further, the results show that the research framework does form a contemporary working capital management model.


Abbadi, S. M. & Abbadi, R. T. (2013). The determinants of working capital requirements in Palestinian industrial corporations. International Journal of Economics and Finance, 5(1), 63-72.

Abor, J. & Biekpe, N. (2009). How do we explain the capital structure of SMEs in sub-Saharan Africa? Evidence from Ghana, Journal of Economic Studies, 36(1), 83-97.

Afza, T. & Nazir, M. S. (2007). Is it better to be aggressive or conservative in managing working capital? Journal of Quality and Technology Management, 3(3), 11-21.

Appuhami, R. (2008). The impact of firms’ capital expenditure on working capital management: An empirical study across industries in Thailand. International Management Review, 4, 11-24.

Arnold, G. (2008). Corporate Financial Management. (4th ed.). Essex: Prentice Hall.

Banos-Caballero, S., Garcia-Teruel, P. J., & Martinez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67, 332-338.

Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173-1182.

Bertrand, M., & Mullainathan, S., (2003). Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy. 111(5), 1075.

Chiou, J. R., L. Cheng L., & Wu H. W. (2006). The determinants of working capital management. Journal of American Academy of Business, 10, 149–155.

Deloof, M. (2003). Does working capital management affect the profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3/4), 573-588.

Delery, J., & Doty, D. (1996). Modes of theorizing in strategic human resource management: Tests of universalistic, contingency, and configurational performance predictions. Academy of Management Journal, 39(4), 802-835.

Ding, S., Guariglia, A. & Knight, J. (2013). Investment and financing constraints in China: does working capital management make a difference? Journal of Banking & Finance, 37, 1490-1507.

Donaldson, L. (1987). Strategy and structural adjustment to regain fit and performance: In defense of contingency theory. Journal of Management Studies, 24(1), 1-24.

Donaldson, L. (1996). The normal science of structural contingency theory. Handbook of organization studies. London: Sage.

Donaldson, L. (2006). The contingency theory of organizational design: Challenges and opportunities. New York: Springer.

Faden, C. (2013). Optimizing firm performance. Alignment of operational success drivers on the basis of empirical data. Wiesbaden: Springer Gabler.

Frazier, P. A., Tix, A. P., & Barron, K. E. (2004). Testing moderator and mediator effects in counselling psychology research. Journal of Counselling Psychology, 51(1), 115.

García-Teruel, P. J., & Martínez-Solano, P. (2007). Effects of working capital management on SME profitability. International Journal of Managerial Finance, 3(2), 164-177.

Govindarajan, V. (1988). A contingency approach to a strategy implementation at the business-unit level: Integrating an administrative mechanism with strategy. Academy of Management Journal, 31(4), 838-853.

Gupta, A. K. & Govindarajan, V. (1984). Business unit strategy, managerial characteristics and business unit effectiveness at strategy implementation. Academy of Management Journal, 17(1), 25-41.

Hawawini, Viallet, & Vora, (1986). Industry influence on corporation working capital decisions. Sloan Management Review, 27, 15-24.

Hill, M., Kelly, G.W., & Highfield, M. (2010). Net operating working capital behaviour: A first look. Financial Management, 39(12), 783-805.

Howorth, C. & Westhead, (2003). The focus of working capital management in UK small firms. Management Accounting Research, 14, 94-111.

Jairo, I. (2008). The use of structural equation modelling (SEM) in capital structure empirical analysis. KCA Journal of Business Management, 1 (1), 11-35.

Kieschnick, R., LaPlante, M., & Moussawi, R. (2013). Working capital management and shareholders wealth. Review of Finance, 17, 1827-1852.

Klapper, L. F. & Love, I., (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of Corporate Finance, 10(5), 703-728.

Kleiman R. T. (1992). Liquidity measures. New developments alleviate old deficiencies. Business Credit, 94 (9), 4.

Kremer, C., Rizzuto, R. & Case, J. (2000). Managing by the numbers. A commonsense guide to understanding and using your company’s financials. Cambridge, Massachusetts: Perseus Publishing.

Langfield-Smith, K. (1997). Management control systems and strategy: A critical review. Accounting, Organization and Society, 22(2), 207-232.

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.

Lenz, R. T. (1980). Environmental strategy, organization structure, and performance: Pattern in one industry. Strategic Management Journal, 1(3), 209-222.

Lindow, C. M. (2013). A strategic fit perspective on firm performance. Leipzig, Germany: Springer Gabler.

Loderer, C., & Waelchli, U., (2010). Firm age and performance. Unpublished manuscript, MPRA Paper 26450, University Library of Munich, Germany.

Lou, X. & Homburg C. (2008). Satisfaction, complaint, and the stock value gap. Journal of Marketing, 72(4), 29-43.

Madhou, A. K. (2011). Development of a risk-adjusted working capital model: Empirical evidence on its contribution to profitability and credit ratings. Unpublished Ph.D., RMIT University, Australia.

Mandal, N., Mahavidyalaya B.N.D.S. & Goswami B. S. (2010). Impact of working capital management on liquidity, profitability and non-insurable risk and uncertainty-bearing: A case study of oil and natural gas commission (ONGC). Great Lake Herald, 4(2).

Mansoori, E. & Muhammad, J. (2012). Determinants of working capital management: Case of Singapore firms. Research Journal of Finance and Accounting, 3(11). 15-23.

Modigliani F. & Miller M.H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53.433-443.

Mohamad, N. E. A. B., & Mohd Saad, N. B. (2010). Working capital management: The effect of market valuation and profitability in Malaysia. International Journal of Business and Management, 5(11), 140-147.

Moussawi, R., LaPlante, M., Kieschnick, R. & Baranchuk, N. (2006). Corporate working capital management: Determinants and consequences. Working Paper, Baylor University.

Myers, S. C. & Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics. 13(2), 187-221.

Noreen, U., Khan, S. K. & Abbas, Q. (2009). International working capital practices in Pakistan. International Research Journal of Finance and Economics, 32, 160-170.

Padachi, K., (2006). Trends in working capital management and its impact on firm's performance: An analysis of Mauritian small manufacturing firms. International Review of Business Research Papers, 2, 45-58.

Palombini, N. V. N. & Nakamura, W. T. (2012). Key factors in working capital management in the Brazilian market. Rev. Adm. Empres. [online], 52(1), 55-69.

Paul, S. Y., Devi, S. S. & Teh, C. G. (2012). Impact of late payment on a firm’s profitability: Empirical evidence from Malaysia. Pacific-Basin Finance Journal, 20, 777-792.

PriceWaterhouseCoopers (2013). Working Capital: opportunities knock. How companies can tap the cheapest source of cash in the ‘new normal.’ Retrieved 10 September 2015, from

Pushpakumar, B. & Yadhav, P. K. (2014). A study on working capital in public enterprises. CAMS Journal of Business Studies and Research. 5, 1-21.

Raheman, A. (2012). Analyzing the working capital management and productivity growth of the manufacturing sector in Pakistan. Unpublished doctoral dissertation. Comsats Institutes of Information Technology Islamabad-Pakistan.

Rajan, R. & Zingales, L., (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50(5), 1421-1460.

Ranjith, B. A. (2008). The impact of firms’ capital expenditure on working capital management: An empirical study across industries in Thailand. International Management View, 4(1), 11-24.

Rehn, E. (2012). Effects of working capital management on company profitability. Unpublished master thesis, Hanken School of Economics, Finland.

Saarani, A. N. & Shahadan, F. (2012). The determinant factors of working capital requirements for enterprise 50 (E50) firms in Malaysia: Analysis using structural equation modelling. Scottish Journal of Arts, Social Sciences and Scientific Studies, 5 (2).52-66.

Sekaran, U., & Bougie, R. (2010). Research methods for business (5th ed.). United Kingdom: John Wiley & Son Ltd.

Sen, M., Kosal, C. D., & Oruc, E. (2009). Relationship between the efficiency of working capital management and company size. Retrieved October 4, 2013, from

Serrasqueiro, Z. S., & Nunes, P. N. (2008). Performance and size: Empirical evidence from Portuguese SMEs. Small Business Economics, 31(2), 195-217.

Shortell, S. (1977). The role of the environment in a configurational theory of organizations. Human Relations, 30, 275-302.

Shulman, J. M. & Cox, R. A. K. (1985). An integrative approach to working capital management. Journal of cash management, 5(6), 64-68.

Smith, J. K., (1987). Trade credit and informational asymmetry, Journal of Finance 42, 863–872.

Snow, C. C., Miles, R. E., & Miles, G. (2006). The configurational approach to organization design: Four recommended initiatives. New York: Springer.

Tan, J. J., & Litschert, R. J. (1994). Environment strategy relationship and its performance implications: An empirical study of the Chinese electronics industry. Strategic Management Journal, 15, 1-20.

Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.

Venkatraman, N., & Prescott, J. E. (1990). Environment-strategy co alignment: An empirical test of its performance implications. Strategic Management Journal, 11(1), 1-23.

Walker, D., (1991). An empirical analysis on financing the small firm. Advances in Small Business Finance, 47-61.

Walsh, C. (2006). Key management ratios: The clearest guide to the critical numbers that drive your business (4th ed.). Glasgow: Pearson Education Limited.

Wasiuzzaman, S. & Arumugam, V. C. (2013). Determinants of working capital investment. A study of Malaysian public listed firms. Australasian Accounting Business and Financial Journal, 7(2).63-83.

Yusuf, B. R. & Idowu, K. A. (2012). An investigation of the effect of aggressive working capital technique on the performance of manufacturing firms in Nigeria. International Research Journal of Finance and Economic, 96, 90-100.

How to Cite
Mazlan, A. R., & Leng, C. Y. (2018). The Moderating Effect of Working Capital Management on the Relationship between Working Capital Determinants and Firm Performance. Indian-Pacific Journal of Accounting and Finance, 2(1), 38-48.
Main Section