Working Capital Management: The Effect of Market Valuation and Profitability in Malaysia

The paper is made with an attempt to bridge the gap in the literature by offering empirical evidence aboutworking capital management and its effect to the performance of Malaysian listed companies from theperspective of market valuation and profitability. The secondary data for analysis is retrieved from Bloomberg’sDatabase of 172 listed companies randomly selected from Bursa Malaysia main board for five year period from2003 to 2007. The study aims to explore the effects of working capital component i.e cash conversion cycles(CCC), current ratio (CR), current asset to total asset ratio (CATAR), current liabilities to total asset ratio(CLTAR), and debt to asset ratio (DTAR) to the firm’s performance by looking at firm’s value i.e Tobin Q (TQ)and profitability i.e. return on asset (ROA) and return on invested capital (ROIC). Applying correlations andmultiple regression analysis, the result shows that there are significant negative associations between workingcapital variables with firm’s performance. Thus it highlights the importance of managing working capitalrequirements to ensure an improvement in firm’s market value and profitability and this aspect must form part ofthe company's strategic and operational thinking in order to operate effectively and efficiently.