Effects of Working Capital Approaches and Firm’s Returns of Sri Lankan Listed Non-Financial Companies

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.