Determinants of Working Capital Requirement: Evidence from Non-Financial Firms Listed on the Vietnam Exchange

Nguyen Thanh Cuong, Nguyen Thi Hong Nhung

Abstract


The purpose of this study is to examine whether non-financial firms listed on the VietNam Exchange exhibit a target working capital requirement (WCR). The study also investigate the determinants of WCR and the speed with which firms can adjust toward their target WCR. Based on a sample of 314 non-financial firms listed on the VietNam Exchange during 2010–2015, Using the Generalized Method of Moments estimation, the study found that firms pursue target levels of WCR. However, the adjustment process is relatively slow with an adjustment coefficient of 0.4573. In addition, the results also show that the WCR increased significantly with increasing in the firm’s profitability. In contrast, the WCR decreases significantly with increasing in the size and fixed investment of the firm. From the results obtained, this study provides important implications to corporate financial managers in effective management of the WCR.


Full Text:

PDF

References


Abbadi, S. M., & Abbadi, R. T. (2012). The determinants of working capital requirements in Palestinian industrial corporations. International Journal of Economics and Finance, 5(1), 65.

Akinlo, O. O. (2012). Determinants of working capital requirements in selected quoted companies in Nigeria. Journal of African Business, 13(1), 40-50.

Azeem, M. M., & Marsap, A. (2015). Determinant Factors and Working Capital Requirement. International Journal of Economics and Finance, 7(2), 280.

Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2013). The speed of adjustment in working capital requirement. The European Journal of Finance, 19(10), 978-992.

Baños‐Caballero, S., García‐Teruel, P. J., & Martínez‐Solano, P. (2010). Working capital management in SMEs. Accounting & Finance, 50(3), 511-527.

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143.

Chiou, J.-R., Cheng, L., & Wu, H.-W. (2006). The determinants of working capital management. Journal of American Academy of Business, 10(1), 149-155.

Cunat, V. (2007). Trade credit: suppliers as debt collectors and insurance providers. Review of Financial Studies, 20(2), 491-527.

Filbeck, G., & Krueger, T. M. (2005). An analysis of working capital management results across industries. American Journal of Business, 20(2), 11-20.

Gujarati, D. N. (2009). Basic econometrics: Tata McGraw-Hill Education.

Hill, M. D., Kelly, G. W., & Highfield, M. J. (2010). Net operating working capital behavior: a first look. Financial management, 39(2), 783-805.

Kwenda, F., & Holden, M. (2014). Determinants of Working Capital Investment in South Africa: Evidence from Selected JSE-Listed Firms. Journal of Economics and Behavioral Studies, 6(7), 569.

Molina, C. A., & Preve, L. A. (2009). Trade receivables policy of distressed firms and its effect on the costs of financial distress. Financial management, 38(3), 663-686.

Mutua Mathuva, D. (2014). An empirical analysis of the determinants of the cash conversion cycle in Kenyan listed non-financial firms. Journal of Accounting in Emerging Economies, 4(2), 175-196.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.

Studenmund, A. H. (2011). Using econometrics: A practical guide.

Wasiuzzaman, S., & Arumugam, V. C. (2013). Determinants of working capital investment: A study of Malaysian public listed firms. Australasian Accounting Business & Finance Journal, 7(2), 49.


Refbacks

  • There are currently no refbacks.


Copyright (c) 2017 Nguyen Thanh Cuong

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.