Title : Liquidity, Level of Working Capital Investment and Performance in an Emerging Economy

Authors : Sharif Ahkam, Khairul Alom

Abstract : In this paper, we investigate the relationship between current ratio, the level of investment in working capital and profitability of firms in Bangladesh for the years 1998-2014. Only non-financial firms listed in the Dhaka Stock Exchange (DSE) are used in the analysis. It is shown in the paper that the more profitable companies tend to and can maintain their investments level in current assets better. Quantile regression points to a non-linear relationship between profit performance and working capital. We conclude that firms with better profitability maintain a healthier level of investment in working capital assets Firms with inadequate investment in current assets have no meaningful relationship with performance. If these firms get an injection of working capital, they may be able to move to a state where they can generate reasonable profits. The paper makes a general argument against tweaking working capital levels and rather recommend focusing on other functions of the business to increase profitability and value.

Journal : International Journal of Business and Economics Volume : 3 Year : 2019 Issue : 18
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