A Theoretical Assessment on the Relationship between Working Capital Investment and Firm's Performance
The concept of financial constraint have a great influence on company decision and capital market entrance as shareholders and directors recognised its negative implication on firm performance. This paper is the first to conceptualize the theoretical influence of financial constraints (FC) on wor...
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| Main Authors: | , , , , |
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| Format: | Article |
| Language: | en |
| Published: |
Human Resource Management Academic Research Society
2022
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| Subjects: | |
| Online Access: | http://ir.unimas.my/id/eprint/38947/1/Working%20Capital1.pdf http://ir.unimas.my/id/eprint/38947/ http://hrmars.com/index.php/journals/archives/IJARAFMS http://dx.doi.org/10.6007/IJARAFMS/v12-i2/14353 |
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| Summary: | The concept of financial constraint have a great influence on company decision and capital
market entrance as shareholders and directors recognised its negative implication on firm
performance. This paper is the first to conceptualize the theoretical influence of financial
constraints (FC) on working capital investment (WCI) and corporate performance through
firm internal resources and managerial competency by employing a qualitative approach from
a theoretical disposition which has been meagerly demonstrated in the literature. Specifically,
bearing in mind the rising unpredictability and issues in the credit and capital markets that
has been noticed for numbers of years and the similar intensification in regulatory capital
about acquiring external financing, the attention of the firm’s gradually shifted to its internal
liquidity generated from enterprise operation on the basis of working capital (WC). This study
argues that business internal resources through managerial skill and internal capital can to
enhance WCI in a financially constrained situation thereby reduces the agency cost and
asymmetric information and increases performance. Hence, we conclude that internal funds
is suitable to finance WCI in a constrained situation for managers to avoid overinvest or
underinvest in working capital asset by controlling for financial constraints. Further review
are expected to determine WCI-performance relationship using some vital accounting ratios
largely generated from annual reports and accounts. |
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