Title : Management of Receivables, Financial Distress, and Profitability-Case of Bangladesh

Authors : Sharif Ahkam, Nazmun Nahar, Shabnin Rahman

Abstract : If a firm's profitability is affected by inefficient working capital practices, it is logical to assume that an adjustment of working capital will improve profitability. When the policy and practices are reasonably efficient, tweaking practices are not expected to be very beneficial. We should observe benefits from an adjustment in working capital practices for those companies that are clearly outside the norm in the industry. The major part of working capital management is receivables management and collection. We examine the data on receivables from Bangladesh for the years 2000-2017 to see if companies with inefficient working capital levels benefit from adjustments toward the norm. We show a new way of examining the benefits of adjustment. We are quite skeptical about the benefits of prescribed adjustment toward some optimal level in working capital balances. Specific actions and reactions will depend on the situation. Any suggestion that management should try to fine-tune working capital management is unlikely to produce much value unless the underlying circumstances are taken into account.

Journal : Asian Economic and Financial Review Volume : 11 Year : 2021 Issue : 9
Pages : 710-723 City : Edition : Editors :
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