Impact of Working Capital Management and Corporate Governance on Firm Performance

Running head: IMPACT OF WCM AND CG ON FIRM PERFORMANCE
IMPACT OF WCM AND CG ON FIRM PERFORMANCE
Name of Student
Name of University
Author Note

1IMPACT OF WCM AND CG ON FIRM PERFORMANCE
Table of Contents
Chapter 4..........................................................................................................................................2
Analysis.......................................................................................................................................2
Descriptive Statistics...............................................................................................................3
Correlation...............................................................................................................................5
Regression................................................................................................................................8
Discussion..................................................................................................................................11
Chapter 5........................................................................................................................................15
Conclusion.................................................................................................................................15
Limitations.................................................................................................................................16
Further Research........................................................................................................................17

2IMPACT OF WCM AND CG ON FIRM PERFORMANCE
Chapter 4
Analysis
The results of the analysis of the connection between firm performance and working
capital management and again on how the firm performance might be affected by corporate
governance of the firm are hence discussed. To study these two relationships the study first
defined firm performance using the Return on Asset or the ROA, the Return on Equity or the
ROE and the Net Profit Margin or NPM of the firm. The study then defined a number of
parameters to gauge the working capital management, using aspects such as, Cash Conversion
Cycle or CCC, the ACP or the Average Collection Period, the AIP or the Average Inventory
Period and the APP or Average Payment Period. The idea is to see how each of these aspects
may impact each of the parameters which represent firm performance. Again, the study defined a
number of parameters to gauge the corporate governance, using aspects such as, Board Size
denoted as BSIZE, Non-executive directors denoted as NEDs and CEO Duality. The study then
investigates the relationship between these parameters with those of firm performance.
Furthermore the study also considers a number of control variables such as firm size or FSIZE,
LEVERAGE and LIQUIDITY.
This section reports on the results of the tests for validity of the seven hypotheses as
defined for the purpose of the study. The analysis included a scrutiny of the descriptive measures
on all the variables defined. The correlation measure between each of the independent variables
with that of the dependent variable, firm performance was then computed to look for any
tentative linear relationship. The study further explores the veracity of the conjectures presuming
a linear relationship between the dependent and seven of the independent variables as specified

3IMPACT OF WCM AND CG ON FIRM PERFORMANCE
in the previous sections using linear regression analysis. It is in this part of the analysis that the
relationship is considered in light of the control variables as well.
Descriptive Statistics
A total of 400 firms were considered for the scope of the study. The mean ROA was of
all the firms considered was found to be 0.02387 that is 2.38%. The maximum was found to be
0.5489 or 54.89%, the minimum was -0.4569 or -45.69% that is a loss of 45.69%. The median
was 0.2271or 2.27% and the standard deviation 0.0944 which means that the estimate of mean is
quite consistent. Again the mean value of ROE of all the firms included in the study was
computed as 0.01751 that is 1.751% and the standard deviation 0.2005 which means that the
estimate of mean is quite consistent. The median value was found to be 0.0338 or 3.38%.Again,
the maximum ROE was found to be 0.781541 or 78.15% and the minimum ROE among the
observed firms was –1.987 or -198.76% that is a loss of 198.75%. The average NPM of all the
observed firms was found to be 0.02043 that is 2.043%. The maximum NPM was found to be
equal to -0.77325 or 77.325% and the minimum NPM was found to be equal to -1.38081 or -
138.081% that is a loss of 138.081%. The median of the NPM of the firms that were observed
was 0.0335 or 3.35% and the standard deviation of the NPM was 0.1966 implying that the
estimated mean is consistent. The mean ACP of all the firm sobserved in the study was found to
be equal to 100.56. The median was observed to be 73.5 , now this differs from the mean and the
standard deviation being equal to 83.30 suggests that the data is not that consistent and is
possibly negatively skewed. The maximum ACP of the firms was computed to be 608, the
minimum was found to be 0. The data for ACP is suspected to have outliers which is inflating
the mean. The average of AIP of all the firms considered in the sudy was found to be equal to

4IMPACT OF WCM AND CG ON FIRM PERFORMANCE
173.428. The maximum AIP among all the firms was 856 and the minimum was 0. The median
was found to be 149 implying that the estimated mean differs from median to a great degree and
the standard deviation of the AIP values was equal to 129.6942. This suggests that the data is not
that consistent.The data is suspected to have outliers which is inflating the mean.The mean APP
of all the firms considered was found to be 89.132. The maximum was found to be 642 the
minimum was 0. The median value of APP was found to be 65.The standard deviation was
computed as 83.098 which suggests that the data is not that consistent and the estimated mean
differs from median to a great degree. The data is suspected to have outliers which is inflating
the mean. The mean CCC of all the firms in the study that were considered was found to be
187.855. The maximum CCC was found to be 960 and the minimum of the CCC was computed
as -141. The median was found to be 154. The standard deviation of CCC is 154.7745 which
suggests that the estimate of mean CCC is not consistent.. The observations on CCC is suspected
to have outliers which is inflating the mean.The mean BSIZE of all the firms considered was
found to be 8.24 or approximately 8. The maximum was found to be 13 the minimum was 5. The
median was 9 standard deviation 2.178 which suggests that the data is consistent.The mean
number NEDs of all the firms considered was found to be 0.87 or approximately 1. The
maximum was found to be 1 the minimum was 0. The median was 0.88 which is also
approximately 1 standard deviation 0.112 which suggests that the data is consistent. CEO duality
has the mean 0.17 or approximately 0 and median is also 0. The standard deviation is 0.37 which
is low and so the estimate is believed to be consistent. The maximum is 1 and minimum 0. The
mean value of leverage of all the observed firms that were included in the analysis was found to
be 0.315 and the standard deviation was 0.1832 which suggests that the data is consistent. The
median was computed as 0.31558. The maximum was found to be 0.998 and the minimum was

5IMPACT OF WCM AND CG ON FIRM PERFORMANCE
computed to be 0.2961. The mean liquidity of all the firms considered was found to be 2.855.
The maximum was found to be 28.09 the minimum was 0.37946. The median of the observed
liquidity of all the firms was 2.124 and the standard deviation of liquidity was 2.617 which
suggests that the data is consistent.
The following table shows all the statistics that have been computed as described above.
Descriptive Statistics
Variable N Minimum Maximum Median Mean Standard
Deviation
ROA 400 -0.45698 0.548939 0.02271 0.0238
7
0.094475
ROE 400 -1.98767 0.781541 0.033832 0.0175
1
0.200551
NPM 400 -1.38081 0.773258 0.033512 0.0204
3
0.196603
ACP 400 0 608 73.5 100.56 83.30228
AIP 400 0 856 149 173.42
8
129.6942
APP 400 0 642 65.5 86.132
5
83.09849
CCC 400 -141 960 154 187.85
5
154.7745
BSIZE 400 5 13 9 8.245 2.178725
NEDs
400 0.4 1 0.888889 0.8749
8
0.111916
CEO-
Duality
400 0 1 0 0.17 0.376103
FSIZE 400 6.56335 9.087522 7.277677 7.4232 0.528611
LEVERAG
E
400 0.01611 0.998157 0.296171 0.3155
8
0.183215
LIQUIDITY 400 0.37946 28.09015 2.124005 2.8556
3
2.617098
Table 1: Descriptive Measures of Variables