International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online) Vol. 7, Issue 2, pp: (407-418), Month: October 2019 - March 2020, Available at: www.researchpublish.com
The Influence of Corporate Governance on the Working Capital Management Efficiency of Omani Firms 1
Dr. Salman Nusrat Zaidi, 2Ms. Sujata Venkatachari Email: salman@cbfs.edu.om
Abstract: Corporate world has felt the demise since the inception of corporate governance scandals which has subsequently questioned the performance of the corporate governance system. Afterwards, financial literature received greater paramount to analyse the corporate governance system in relation to different parameters of the firms. The study has attempted to extract good corporate practices which will provides useful information and intuition to equity investors, security analyst, policy maker and financial management consultant. This study uses regression and correlation techniques to investigate the impact of corporate governance on working capital management efficiency of Omani firms employing causal correlation research design and a sample of 62 firms listed at Muscat Securities Market for the period of 3 years from 2016-2018. The results show that audit committee, board size and gender effect improve utilization of the working capital. Keywords: Cash Conversion Cycle, Corporate Governance, Corporate Governance Index.
1. INTRODUCTION Qianhua & Huili (2019) argues that Corporate governance (CG) has occupied explicit recognition in modern corporate world. The growth and stability of businesses is highly dependent upon corporate governance. Corporate governance has been defined as “Procedures and processes according to which an organization is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization such as the board, managers, shareholders and other stakeholders and lays down the rules and procedures for decision-making” (Małgorzata & Tomasz, 2018). In the last two decades, several corporate scandals such as those happened in case of Enron, WorldCom, Adelphia, Parmalat, Tyco etc. has materialized the role of corporate governance prominent. Due to such incidents, it has led to emerge various corporate governance laws like Sarbanes-Oxley act 2002 to block its way. Researchers and academia now check CG system with different parameters of the firms like profitability and growth etc. to make fair judgment about organizational resources (Xinyuan & Jun, 2019).
2. LITERATURE REVIEW Pioneer study conducted by Amalia & Atika (2018) using a model to estimate for the firm real cash holding balance, for which data was collected from US manufacturing firms for the period of 16 years taking from 1948 to 1964. In results, it was found that the demand for cash or requirement of cash balance increases as output increases. In the study of Puritud, Jim & Michael (2018) “the impact of corporate governance on working capital management efficiency of American manufacturing firms” conducted for the time frame of 2009- 2011 using a sample of 180 companies. the analysis was done through correlation and regression. The study used CEO tenure (CT), CD, Audit committee (AC), and BS to measure corporate governance and WCM was measured by AR, AP, INV, CCC, CH, and cash conversion efficiency. The study also used sales growth (SG), internationalization of firm (FI), firm size (FS) and sales growth as control variables. It was found that corporate governance does play important role in the management of working capital (Hemathilake & Chathurangani, 2019).
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