Working capital policy practice: Evidence from Sri Lankan companies

This study investigates working capital policy (WCP) practices in Sri Lankan context. We utilize multiple regression analysis (MRA) to empirically formulate the industry's ‘best practice’ limit and measures firm efficiency as the detachment from that limit. Using theses different working capital policy we study WCP behavior, firm performance and deciding factors. We summarize the divergent properties of working capital policy in terms of two hypotheses: the efficiency, liquidity levels and working capital policy hypotheses. Employing multiple regressions we test the influence of efficiency on factors that is determining the WCP, thus the empirical validity of two competing hypotheses across different working capital policy choices and what factors associated with the determinants of listed firm to exploit particular working capital management policy. We also investigate firm performance and WCP. Throughout this investigation we consider the role of WCP and determinants of WCP. The study finding explore the impact of different types of working capital policy practises are differently affect the firm liquidity, efficiency, profitability and capacity usage. Sample of this investigation consist 155 companies listed in Colombo Stock Exchange (CSC) from 2002 -2006.