ADNAN ALI CH

Roll No. 167

Supervisor: SHAKIL AHMAD

Topic: CORPORATE GOVERNANCE PRACTICES AND ITS

IMPACT ON WORKING CAPITAL MANAGEMENT EFFICIENCY
Contents:
Introduction
Corporate Governance in Pakistan
Research objectives
Research questions
Contribution to the study
Significance of study
Research methodology
Conceptual Framework
Hypothesis
Research Models
Data analysis and statistical tools
Introduction
What is Corporate
Governance?

Corporate governance is a
system of rules and principles
by which companies are
directed and controlled.
Corporate governance
comprises of a network of
various stakeholders in which
their interests are protected.
Introduction
Introduction
Organization of Economic

Co-operation and
Development (OECD)
states that Corporate
Governance is the
platform for interrelated
relationships between
management, board of
directors, shareholders
and other stakeholders of
the corporation.
Introduction
In the beginning of 2002
Securities and Exchange
Commission of Pakistan (SECP)
revolutionized the Corporate
Culture by introducing codes of
corporate governance in
Pakistan.

It includes practices and

suggestions aligned at international
standards

It provides transparency in
corporate practices and ensures the
maximum availability of information
to markets for new stakeholders

It provides maximum protection of

rights of investors and shareholders
Corporate Governance in
Pakistan
In Pakistan, most of the
big corporations are
family owned in which
close family members
are main shareholders
and members at board
of directors.

Now the people are

getting aware of
Corporate Governance.
Introduction
WORKING CAPITAL
EFFICIENCY
This study, refers to the
management of current
assets and of current
liabilities.
using cash efciently for
day-to-day operations
rms hold cash for
precautionary,
speculative, and
transactional motives
Literature Review
Stewart (1995) A composite
metric describing the
Author
Ruth Banomyong Thammasat
average days required to
Business School, Thammasat turn a dollar invested in raw
University, Thailand material into a dollar
Measuring the Cash Conversion collected from a customer
Moss and Stine (1993) Days
Cycle in an International Supply
Chain between accounts payable
variables and accounts receivable
Account Receivable Turnover in Gallinger (1997) he cash
Days conversion cycle measures
Inventory Turnover the number of days the
Payable Turnover in Days rms operating cycle
C2C = A/R + Inv A/P requires costly nancing to
results support it. Lancaster et al.
The calculation of the supply (1998)
chain cash conversion cycle is Schilling (1996) Soenen
interesting as the results (1993) Inventory days of
shows a negative C2C cycle of supply + accounts
minus 50 days for the US receivable accounts
importer. payable Table
Literature Review
production output and cash balances
Nadiri(1969)
cash balances and easiness of borrowing Dittmar
et al (2003)
leverage, rm size, and cash levels
Saddour( 2006)
corporate governance and cash holdings Drobetz
and Gru ninger (2007)
sales growth and corporate liquidity Gill and
Mathur (2011) corporate governance and cash
policy (Kuan et al.(2011)Lau and Block 2012 Gill
and Shah( 2012)
sales growth and cash conversion cycle.
Literature review variables
Author or paper
corporate governance
practices and its impact on
working capital management
sir Lankan evidence
Kajananthan, R.a
Achchuthan, S
Data and study
secondary data 25
manufacturing rms Multiple
Regression, annual report
data collection, Analysis
requires necessary amount of
working capital for smooth
functioning
Agency theory and Stewardship
theory
board size .board meeting,
Board Leadership
Structure, Board
Committee
Cash Conversion Cycle
(days),Current Assets :
Total Assets Current
Labilits: Total Assets
(dpendent variable)
Results
there is no signicant impact
corporate Governance
practices on the Cash
Conversion cycle.
signicant impact of
corporate Governance
practices on current
liabilities to total assets

Literature review
Author or paper
The impact of corporate
governance on working capital
management
American manufacturing rms
extend the ndings of Gill and
Shah
Data and study
Inefcient working capital
management policy, induced
by poor corporate gov
cash wanton behavior by
management Isshaq et al
(2009) IT and communications
(four rms)industrials (71
rms)materials (62 rms);
energy sector one rm
SALES GROWTH ,MULTI NAT
variables
Accounts receivables (ARi,t)
(Accounts receivables/sales)
365 days
Cash conversion cycle (CCCi,t)
No. of days A/R no. of days
inventory 2 no. of days A/P
Cash holdings (CHi,t) Log of
average cash
Current assets/current
liabilities CEO tenure
CEO duality
Board size
Audit committee
Results
Larger board size may not
be in favour of American
manufacturing rms
because
does not improve working
capital management
efciency. longer in a rm,
he or she has a positive
inuence on working capital
management efciency.
Literature review
Working Capital Management And Protability
Case Of Pakistani Firms
Abdul Raheman and Mohamed Nasr
To establish a relationship between Working
Capital Management and Protability over a
period of six years for 94 Pakistani companies
listed on Karachi Stock Exchange.
variables
Net Operating Protability (NOP)
other same CCC,
AR,AP,INT
working capital management signicantly affects
protability of Pakistani rms is the one to be
accepted
 variables

Literature review
Cost-Income Ratio
which is used as a
quick test of efficiency
which reects the non-
Corporate Governance
interest costs as
and Bank Performance: proportion of net
Evidence from income
Macedonia Capital Adequacy Ratio
Data and study (CAR) expressed as
Spencer Stuart Board proportion of nancial
Index (2008) reports capital
that worldwid Managing Board
National Bank of the (MBSIZE)
Republic of Macedonia Supervisory Board
(NBRM) (SBSIZE)
Supervisory Board
proxy statements
Independence
published by the banks
(SBINDEPEND)
at the end of the year
Women members of
Supervisory
(WSBRATIO
Literature review
FACTORS INFLUENCING CORPORATE WORKING CAPITAL
MANAGEMENT: EVIDENCE FROM AN EMERGING ECONOMY

KAMAL NASER1, RANA NUSEIBEH2 and AHMED AL-HADEYA3

CCCx = 0 + 1PROF + 2SIZE + 3INDS + 4OCFL +
5SGRW + 6LEVE +
Results
companies mainly belong to the telecommunications,
energy and real estate industries. The analyses also
revealed that the cash conversion cycle of companies
belong to these industries is signicantly shorter than
the cycle of companies belong to other industries.
In addition, sales growth, together with return on
equity of companies, belong to three mentioned
industries were relatively better than companies
belong to the remaining industries
Literature review
independent
variables
CEO qualities: Dummy for
CEO (CEO)1: if the CEO is
foreign citizen
proportion of non-executive
members in the Supervisory
board
proportion of foreign
members in the Supervisory
board
proportion of women
members in the Supervisory
board
Supervisory Board
Educational Ratio
variable
Banks age (AGE
if a bank is subsidiary of
a multinational bank
results
Supervisory and the
Managing board is
positively related to the
banks protability
positive relationship
exists between the size
of the Managing board
and the Cost-Income
Ratio
Literature review
BOARD COMPOSITION AND CORPORATE
PERFORMANCE:
AUSTRALIAN EXPERIENCE INFORMS CONTRASTING
THEORIES

Company size
Diversication
number of SIC codes reported by the company
Tobins Q and Return on Assets (ROA)
Company size is positively correlated with board
size.
Board size is positively correlated with company
diversication
Number of board interlocks is positively correlated
Research Objectives
The main objective of the study
is to nd out the signicant
difference between corporate
governance practices on
working capital management
efficiency.
The secondary objective is to
suggest the listed
manufacturing rms in
Pakistan to get the efficiency in
the working capital
management through the best
corporate governance
practices
 Research Questions
Does the Board Leadership structure impact the

working capital management efficiency?

What is the impact of Board Size on the working

capital management efficiency?

What is the impact of Board Committee on the

efficiency of working capital management?

Is there any impact of Board Meetings on the

efficiency of working capital management?

What is the direction of association between the

proxies of corporate governance and working

capital management?
Contribution to study
There is an important need for research to inform current
corporate governance debates. Yet the study of corporate
governance is complicated by the fact that the structure, role
and impact of boards have been studied from a variety of
theoretical perspectives, which in turn have resulted in a
number of sometimes competing theories concerning
corporate governance. A common aim of many of the
theories of corporate governance has been to posit a link
between various characteristics of the board and corporate
working capital management.
Signicance of the study
This study will help the top echelon of any rm
while making strategic planning to improve the
efficiency of working capital management through
best corporate governance practices.

This study will also guide the management of the

companies while taking nancial decisions keeping
in view the economic condition.

The ndings may be useful for nancial managers,

investors, nancial management consultants, and
other stakeholders
 Research methodology
On Karachi Stock Exchange, almost 654 rms were listed
during the period of 2009 to 2013. Out of which 396 were
belonged to non-nancial category. This research will be
restricted to non-nancial manufacturing listed rms. For
the purpose of sampling, I will use the data of 130 rms in
this study. The data will be collected from the annual
reports of the sampled rms.
Further, earlier mentioned rms have been selected based
on the availability of data on the corporate governance
practices and working capital management of the listed
manufacturing companies in Karachi Stock Exchange.
In this research study descriptive, correlation and panel
data regression analysis will be used to measure the
impact of corporate governance practices on working
capital management.
Conceptual Framework
Independe
Independe
Dependen
Dependen
nt
nt
tt Variables
Variables
Variables
Variables
Conceptual
Ceo Duality ccc
frameworkhas been (CEO) INT

used hereto outline Number of

Board CA/TA
Meetings CL/TA
(BM)
possible courses of
ART
Board Size
APT
action or to present a (BS)
CR

preferred approach to board

committee
Bc

the idea.
Conceptual Framework (Independent
Variables)

CEO Duality
CEO duality refers to the
situation when the CEO also
holds the position of the
chairperson of the board.

Number of board
meetings
Meetings held in a calendar
year. More number board
meetings. Greater frequency
of board meetings tends to
higher performance.
Conceptual Framework (Dependent
Variables)

Cash Conversion Cycle (CCC) (Accounts

receivable period + Inventory turnover period -
Accounts Payable Period).
2. Current Assets / Total Assets (CA/TA)
3. Current Liabilities/ Total Assets (CL/TA)
4. Account receivable turnover (ART)
5. Inventory turnover (INT)
6. Accounts payable turnover (APT)
7. Current Ratio (CR)
Conceptual Framework (Independent
Variables)
Board Leadership
Structure (BLS)
Board Size (BS)

Board
Committees (BC)
Board Meetings
(BM)
 Hypothesis of the study
Hypothesis 1 (H1)
There is a signicant impact of corporate Governance practices on
the Cash Conversion cycle.
There is a signicant impact of corporate Governance practices on
the Current Assets to Total Assets.

There is a signicant impact of corporate Governance practices on

the Current Liabilities to Total Assets.

There is signicant impact of corporate Governance on Accounts

Receivable Turnover.

There is signicant impact of corporate Governance on Inventory

Turnover.
There is signicant impact of corporate Governance on Accounts
Payable Turnover.
There is signicant impact of corporate Governance on Current Ratio.

Research Models
Model 1

APT
 It is the working capital management efficiency of the
rms at time t
= It is intercept and constant of the linear equation
i = It is the coefficient of change in Xit variables
Xit = It shows the independent variables that will be
used for corporate governance
practices of the rms i at time t.
i = It shows the number of rms that will be used in
the study i.e. here 130 rms.
t = It shows the time period will be used in the
study i.e. here 5 years.
Working capital management of the rms can be
measured by using the following seven models on the
basis of above general linear equation. All the models
will be used to measure the impact of corporate
governance practices on the working capital
management efficiency
DATA ANALYSIS AND STATISTICAL
TOOLS

SPSS software will be used to

perform statistical data
analysis which is a common
software used in such type of
studies. The proposed tool to
test the relationship between
the factors of corporate
governance and performance is
multiple regression.