The Relationship between Working Capital Management and Financial Performance: Evidence from Jordan

Efficient working capital management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet short-term obligations and at the same time avoiding excessive investment in current assets. The study's objective is to investigate the moderating effect of working capital investment and financing policy on the relationship between working capital management efficiency and the financial performance of industrial firms listed on the Amman Stock Exchange (ASE). To achieve the objective of the study, this study used time series and data covering the period 2010-2018. A sample of 42 manufacturing firms listed on the ASE was used in the analysis and hypotheses testing. Return on assets is used to measure financial performance, while inventory turnover, receivables turnover, current assets turnover, working capital turnover, and inventory-to-sales ratio are used to measure the working capital management efficiency. This study involved two hypotheses, and both hypotheses were tested to emphasize a 95 percent level of confidence. For data analysis, we used descriptive statistics and the multiple linear regression method was used for hypotheses testing. The study finds that inventory turnover, receivables turnover, current assets turnover, and working capital turnover affect the financial performance of the manufacturing firms, whereas no substantial differences were found between the direct or the moderating models in estimating financial performance.