Impact of Firm Specific Factor and Financial Constraints on Working Capital Management : Evidence of Pakistani Automobile Sector

The current study investigates the impact of firm's specific factors such as its size, liquidity or leverage, cash flow, profitability, asset tangibility and growth opportunity on working capital management. Secondary data of 8 assembling companies working in the automobile sector of Pakistan economy has been extracted from the sector analysis report issued by the State Bank of Pakistan (SBP), covering a period of 9 years (2009 – 2017). Data was analyzed using multiple regressions. Results show that firms' size, leverage and asset tangibility has a negative significant impact on firm's working capital management. However, profitability, cash flow and growth opportunity have an insignificant impact on firm's working capital management. It was found that different firm characteristics make it necessary for firms to have different working capital policies that are much more suited to their situation. In fact, the non-parametric tests also indicate the presence of a sectorial/industrial effect that cannot be ignored. Hence, a better understanding of why firms adopt a specific working capital policy will allow financial institutions to determine whether the firms are justified in adopting a specific policy, and in evaluating their financial well being