Impact of Aggressive Working Capital Management Policy on Firms’ Profitability

Abstract

The present study investigates the traditional relationship between working capital management policies and a firm’s profitability. Using the panel data set for the period 1998-2005, the impact of aggressive working capital investment and financing policies has been evaluated using return on assets as well as Tobin’s q. Managers can create value if they adopt a conservative approach towards working capital investment and working capital financing policies. The study also finds that investors give weight to the stocks of those firms that adopt an aggressive approach to managing their short-term liabilities.