Abstract:
The aim of this study is to find out the effects of aggressive/conservative working capital
management policies; (both investment and financing policies) have on firms’ returns for
172 Sri Lankan listed non-financial companies of 17 business sectors listed at Colombo
Stock Exchange (CSE) for a period of six years from 2014 to 2019. Data were obtained
from the annual audited financial statement of the firms presented to CSE. The study
adopted Descriptive Statistics Least Significant Differences (LSD), Rank Correlation, and
Linear Regression models in analyzing the data. The results revealed that the working
capital investment and financing policies have generally significant positive effects on
firms’ returns to the investors as well as financial managers in the long run. The empirical
evidence suggests that the balanced and well-monitored policy including both conservative
working capital investment and financing policies should be an ideal as regularized and
reviewed in the process. The study emphasized that the conservative working capital
investment policies increase firms returns while conservative financing policies yield
negative returns. Therefore, this study would enable finance managers to be able to
regularize and prepare the appropriate working capital management policies. Moreover,
findings suggest the Sri Lankan business firms pursuing the conservative working capital
investment policy should balance it with an aggressive working capital financing policy to
enhance firms’ returns and to create value for their investors.
