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Relationship between working capital management and firm financial performance: Empirical evidence from Amman stock exchange listed companies.

Ahmad Khateeb

Manufacturing firms? performance is predisposed majorly to the strength of working capital management. Working capital management provides the strategy to improve financial strength and growth of firms. Considering the contribution of working capital to Jordan?s economy; this study examined the effect of working capital management on financial performance. Cross sectional and time series data of 46 listed manufacturing firms on Amman Stock Exchange for a period of 2010 to 2014 were assessed. This article conducted an empirical investigation using descriptive and regression analyses to evaluate the effect of working capital management on firms? financial performance. Multiple regression analysis was performed with each estimated model to examine the significance of relationship amongst variables. The result from these analyses indicated that 26% of variance in firms? financial performance was attributed to working capital management. The result also indicated an inverse relationship between Return on Assets (a measure of performance) and working capital variables-Accounts collection period, average payables period and inventory conversion period. This study recommends an effective management of working capital with flexible financial policy that will encourage investment. Further study can also be conducted to include more sectors of the Jordan economy.