Title : Cointegration Analysis for Working Capital and Profitability

Authors : Sharif Ahkam, Khairul Alom

Abstract : In this paper, we investigate the relationship between working capital and profitability of firms in Bangladesh for the years 1998-2011. Only non-financial firms listed in the Dhaka Stock Exchange (DSE) are used in the analysis. It is shown in the paper that the relationship between liquidity and profitability works both ways, more profitable companies tend to and can maintain greater liquidity while lack of liquidity also appears to impact profitability. A co-integration model is used to examine the relationship between liquidity, return on assets (ROA), firm size, and debt ratio of firms. Impulse response analysis indicates that while the other variables quickly return to equilibrium, a shock to liquidity or profitability seem to have a significant and durable lasting impact on the relationship. The results strongly point to a cointegrating relationship.

Journal : Volume : Year : 2014 Issue :
Pages : City : Las Vegas, USA Edition : Editors :
Publisher : Clute Institute ISBN : Book : Chapter :
Proceeding Title : 2014 Annual International Business Conference Institution : Issuer : Number :