Economics and Finance Review Vol. 1(3) pp.

30 40, May, 2011

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FACTORS THAT INFLUENCE WORKING CAPITAL REQUIREMENTS IN CANADA

Amarjit Gill
Professor of Business Administration
College of Business Administration, Trident University International,
5665 Plaza Drive, CA, 90630, USA.
agill@tuiu.edu
ABSTRACT
The purpose of this study is to find the factors that influence the working capital requirements (wcr) in canada.
a sample of 166 canadian firms listed on toronto stock exchange for a period of 3 years from 2008-2010 was
selected. this study applied co-relational and non-experimental research design. overall results indicate that
operating cycle (oc), return on assets (roa), internationalization of firm, firms growth, and firm size influence
the wcr in canada. the study also found that oc, roa, leverage, internationalization of the firm, tobin's q, and
firm size influence the working capital requirements in the canadian manufacturing industry. in addition,
findings show that oc, roa, sales growth, and firm size affect the wcr in the canadian service industry. this study
contributes to the literature on the factors that influence working capital requirements. the findings may be
useful for the financial managers, investors, and financial management consultants.
Keywords: Working Capital Requirements; Operating Cycle; Operating Cash Flows; Firm Growth; Return on
Assets; Firm Size.

1. INTRODUCTION
The purpose of this study is to find the factors that influence the working capital requirements in Canada. The
working capital requirement, in the context of this study, is defined as the minimum amount of resources that a
firm requires to effectively cover the usual costs and expenses necessary to operate the business. Working
capital management deals with current assets and current liabilities. The working capital meets the short term
financial requirements of a business enterprise. The lesser requirements of working capital leads to less need for
financing and less cost of capital, which in turn, increases the availability of cash for shareholders (Ganesan,
2007).
The effective management of working capital is very important because it affects the profitability and liquidity
of the firm (Taleb et al., 2010). The main objective of working capital management is to maintain an optimal
balance between each of the working capital components. The efficient management of working capital is a
fundamental part of the overall corporate strategy to create shareholders value (Nazir & Afza, 2008, p. 294).
Therefore, firms try to keep an optimal level of working capital that maximizes their value (Deloof, 2003).
Theoretically, working capital management concepts may be simple and straightforward for the financial
executives such as Chief Financial Officers (CFOs), but in practice, it has become one of most important issues
in the organizations. Many financial executives are struggling to identify the basic working capital drivers and
the appropriate level of working capital (Lamberson, 1995). The lack of understanding about the impact of
working capital requirements on profitability, the lack of clarity about its determinants, and the lack of
managements ability to plan and control its components may lead to insolvency and bankruptcy. Smith (1973)
also argues that a large number of business failures may come from the inability of financial managers to plan
and control current assets and current liabilities of their respective firms.
Nazir and Afza (2008) explain that companies can minimize risk and improve overall performance by
understanding the role and drivers of working capital. Therefore, it is important to understand the components of
working capital to have an optimal level of working capital. The optimal level of working capital is the one in
which a balance is achieved between risk and efficiency. However, an optimal level of working capital requires
continuous monitoring of various components of working capital such as accounts receivables, accounts
payables, inventory, cash, and marketable securities.

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The efficient management of working capital does not only immunize firms from financial upheaval, but also
improves the competitive position and profitability. For example, an increment in the speed of a cash cycle
through receivables and payables management helps generating more profitability and liquidity. In addition,
effective inventory management is critical to the management of liquidity and profitability of the firm (Taleb et
al., 2010). Therefore, it is important to maintain an optimal balance between each of the working capital
components.
A variety of variables that might potentially be responsible for the working capital requirements can be found in
the literature. In this study, the selection of explanatory variables is based on alternative theories related to
working capital requirements and additional variables that were studied in reported empirical work. The choice
is sometimes limited, however, due to lack of relevant data. As a result, the final set of proxy variables includes
ten factors: working capital requirements, operating cycle, operating cash flows, sales growth, return on assets,
Tobins q, leverage, firm size, firm's internationalization, and industry dummy. The variables, together with
theoretical predictions as to the direction of their influence on working capital requirements are summarized in
Table 1.
Nazir and Afza (2008, 2009) have tested variables by collecting data from Karachi Stock Exchange (KSE). This
study seeks to extend these studies by analyzing data from Canada. The results might be generalized to
manufacturing and service industries.
This study contributes to the literature on the determinants of working capital requirements in at least two ways.
First, it focuses on Canadian manufacturing and service firms while only limited research has been conducted on
such firms recently. Second this study validates some of the findings of previous authors by testing the
relationship between working capital requirements and operating cycle, operating cash flows, sales growth,
return on assets, Tobins q, leverage, and firm size of the sample firms. Thus, this study adds substance to the
existing theory developed by previous authors.
2. LITERATURE REVIEW
Working capital management is very important for creating value for shareholders (Shin & Soenen, 1998).
Efficient working capital management is crucial for the business organizations because it has a significant
impact on both profitability and liquidity. Therefore, it is important for the financial managers and executives to
understand the requirements of working capital.
Soenen (1993) used approximately 2,000 firms from 20 different industries for a period of 1970-1989 and found
a negative relationship between company's net trade cycle and its profitability as measured by the total return on
total assets. The findings show that shorter net trade cycles are most commonly associated with higher
profitability. Soenen explains that by carefully monitoring both the timing and magnitude of cash flows,
managers can generate cash for investment purposes. The cash conversion cycle, by reflecting the net time
interval between actual cash expenditures for the purchase of productive resources and the ultimate collection of
receipts from product sales, provides a valid alternative for measuring corporate liquidity. In addition, author
describes that the length of the cash conversion cycle is instrumental in determining the degree to which a firm
must rely on external financing.
Lamberson (1995) studied 50 small firms for a period of 1980-1991 and used economic indicators as
independent variables and financial ratios as dependent variables to explore the relationship between changes in
working capital position and changes in the level of economic activity. The findings show that liquidity
increased slightly for the sampled firms during economic expansion with no notable change in liquidity during
economic slowdowns.

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Weinraub and Visscher (1998) used quarterly data for a period of 1984-1993 and collected data from 216 US
firms to discuss the issues of aggressive and conservative working capital management policies. Their results
show that the industries had significantly different current asset management policies. The relative nature of the
working capital management policies exhibited remarkable stability over the 10 year period of study. Weinraub
and Visscher also found that industry policies concerning relative aggressive/conservative liability management
were significantly different. In addition, the results show a high and significant negative correlation between
industry asset and liability policies. Relatively aggressive working capital asset management seems balanced by
relatively conservative working capital financial management.
Filbeck and Krueger (2005) provide insights into the performance of surveyed firms across key components of
working capital management. Authors assessed nearly 1,000 firms and used data from a traditional working
capital management survey published by CFO Magazine in United States, for a period 1996-2000. Researchers
discovered that significant differences exist between industries in working capital measures and these measures
change across time. According to Filbeck and Krueger, these changes could be related to the macroeconomic
factors such as interest rate, innovation rate, and competition.
Chiou et al. (2006) collected quarterly data from Taiwan Stock Exchange by using 19,180 firms, for a period
1996-2004. Although, the study revealed that debt ratio and operating cash flow can affect management of
working capital, authors did not find any consistent empirical results on the relation of the working capital
management to business indicator, industry effect, company growth, firm performance, and firm size.
Sathyamoorthi and Wally-Dima (2008) used retail domestic companies listed on Botswana Stock Exchange
from 2004 to 2006. Research findings reveal that companies adopt a conservative approach in the management
of their working capital which suggests that it is not static overtime, but varies with the changes in the state of
the economy. Companies tend to adopt a conservative approach in the times of high volatility and tend to adopt
an aggressive approach in times of low volatility.
Appuhami (2008) collected data from 416 companies listed on Thailand Stock Exchange for a period of 20002005 and found a negative relationship between operating cash flow and working capital management.
Nazir and Afza (2008) used 204 manufacturing firms from 16 industrial groups listed on Karachi Stock
Exchange (KSE) for a period of 1998-2006 to find the factors that determine working capital requirements.
Authors used working capital requirement as a dependent variable and operating cycle of firm, level of
economic activity, leverage, growth of firm, operating cash flows, firm size, industry, return on assets and
Tobins q as independent variables. Regression analysis was used on panel data for 204 non-financial firms over
a span of nine years. Researchers found an evidence that operating cycle, leverage, return on assets and Tobins
q significantly influence the working capital requirements.
Nazir and Afza (2009) used 132 manufacturing firms from 14 industrial groups listed on Karachi Stock
Exchange (KSE) between a period of 2004-2007. They used working capital requirement (WCR) as the
dependent variable. Operating cycle of the firm, level of economic activity, leverage, growth of the firm,
operating cash flows, firm size, industry, return on assets, and Tobin's q were used as the determining factors of
working capital requirements. Authors carried out regression analysis on the panel data for 132 non-financial
firms over a period of nine years. They found positive relationships between i) operating cash flow and WCR,
ii) Tobins q and WCR, iii) return on assets and WCR, and iv leverage and WCR. Authors did not find any
statistically significant relationships between i) size of the firm and WCR and ii) sales growth and WCR. They
also indicate that the level of economic activity does not have any significant effect on WCR practices of firms
in Pakistan.
Taleb et al. (2010) used 82 industrial firms from listed on Amman Stock Exchange (ASE) for a period of 20052007. Authors used working capital requirement as a dependent variable. They used operating cycle of firm,
level of economic activity, leverage, growth of firm, operating cash flows, firm size, return on assets, and

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Tobins q as independent variables. Through regression analysis, researchers found statistically significant
relationship between working capital requirements and operating cash flows. They also found statistically
significant relationships between all independent variables and working capital requirements at every year and
all period years of the study.
In summary, the literature review shows that operating cycle, operating cash flows, firms growth, return on
assets, Tobins q, leverage, firm size, and industry dummy influence working capital requirements. The present
study investigates the relationship between a set of such variables and the working capital requirements of a
sample of Canadian manufacturing and service firms. Table 1 summarizes the definitions and theoretical
predicted signs.
3. METHODS
3.1 Measurement
To remain consistent with previous studies, all the measures (except the internationalization of the firm)
pertaining to the factors that influence the working capital requirements were taken from Nazir and Afza (2009,
p. 32 and 33). They used cross sectional yearly data and measured the variables as follows:
WCR_TAi (Working capital requirements) = [(Cash and equivalents + Marketable securities + Inventories +
Accounts receivables) - (Accounts payables + Other payables)] / Total assets
OCi (Operating cycle) = Sum of days in inventory plus sum of days in accounts receivables [Days in inventory =
average inventory / (Annual sales/365days); Days in accounts receivables = Average accounts receivables /
(Annual sales/365days)]
OCF_TAi (Operating cash flows) = Cash flows generated from the routine operations of the firm and obtained
directly from the cash flow statement as well as deflated by total assets (operating cash flow / total assets)
Growthi (Firms growth) = Sales variability measured by changes in annual sales (Current years sales minus
previous years sales divided by previous years sales)
ROAi (Return on assets) = Net income of the firm divided by the total assets
Qi (Tobins q) = Sum of book value of total debt plus market value of equity divided by the book value of total
assets of the firm
Levi (Leverage) = Total debt to total assets ratio for the firms (total debt / total assets)
LNSizei (Firm Size) = The natural log of total assets of firm
MULTIi = Internationalization of firm (Firm is assigned value 1 if it is a multinational corporation and zero
otherwise)
IndDumi (Industry) = IndDum is used as industry code (Firm is assigned value 1 if it is service firm and zero
otherwise)
i = the error term
The study uses panel data for the period 2008-2010 and an Ordinary Least Square (OLS) regression model to
find the factors that influence working capital requirements. The model is as follows:

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WCR_TAi = + 1OCi + 2OCF_TAi + 3Growthi + 4ROAi +5Qi + 6Levi + 7LNSizei + 8MULTIi +

9IndDumi + i
The study applied co-relational and non-experimental research design. The process of measurement is central to
quantitative research because it provides the fundamental connection between empirical observation and
mathematical expression of quantitative relationships.
3.2 Data Collection
A database was built from a selection of approximately 700 financial-reports that were made public by publicly
traded companies between January 1, 2008 and December 31, 2010. The selection was drawn from Mergent
Online [http://www.mergentonline.com/compsearch.asp] to collect a random sample of manufacturing and
service companies. Out of approximately 700 financial-reports announced by public companies between January
1, 2008 and December 31, 2010, only 166 financial reports were usable. The cross sectional yearly data were
used in this study. Thus, 166 financial reports resulted to 498 total observations. Since random sampling method
was used to select companies, the sample is considered as a representative sample.
For the purpose of this research, certain industries were omitted due to the type of activity. For example, all the
companies from the financial services industry were omitted. In addition some of the firms were not included in
the data due to lack of information for the certain time periods.
3.3 Descriptive Statistics
Table 2 shows descriptive statistics of the collected variables. All variables were calculated using balance sheet
(book) values. The book value was used because the companies did not provide any market value related to the
variables that were used in this study. The explanatory variables are all firm specific quantities and there is no
way to measure these variables in terms of their 'market value.' Furthermore, when market values are considered
in such studies there's always a rather legitimate question of the date for which the 'market values' refer to. This
is rather arbitrary. Hence, 'book values' as of the date of the financial reports were used in this study (Gill et al.,
2010, p. 5).
The explanation on descriptive statistics is as follows:
i) Total observations = 166 x 3 = 498
ii) Manufacturing firms = 91
iii) Service firms = 75
iv) Multinational firms = 119
v) Local firms = 47
vi) WCR (the minimum amount of resources that a firm requires to effectively cover the usual costs and
expenses necessary to operate the business) = 45%
vii) Operating cycle = 167.09 days
viii) Operating cash flows deflated by total assets of firm = 11%
ix) Firms growth (measured by sales growth) = 25%
x) Return on assets = 6%
xi) Tobins q = 2.79
xii) Firm leverage = 39%
xiii) Firm size (measured by the natural log of total assets) = 2.64 millions (see Table 2)
Table 3 provides the Pearson correlation for the variables used in the regression model. The findings of Pearson
correlation analysis are as follows:
Overall, working capital requirements (dependent variable) is i) positively correlated with operating cycle,
return on assets, Tobin's Q, and industry, and ii) negatively correlated with firm size (see Table 3).

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Working capital requirements is i) positively correlated with operating cycle, return on assets, and
internationalization of the firm, and ii) negatively correlated with firm size in the Canadian manufacturing
industry (see Table 3).
Working capital requirements is i) positively correlated with operating cycle and return on assets, and ii)
negatively correlated with firm size in the Canadian service industry (see Table 3).
4. REGRESSION ANALYSIS
The regression analysis section presents the empirical findings on the relations of operating cycle, operating
cash flows, firms growth, return on assets, Tobins q, leverage, firm size, internationalization of the firm, and
industry dummy with working capital requirements. The Ordinary Least Square (OLS) model with cross section
weight of seven sectors (consumer products, services, utilities, health care, information technology and
communication, industrials, materials) from manufacturing and services industries was used to perform data
analysis. The results are as follows:
Overall, positive relationships between i) operating cycle (OC) and working capital requirements (WCR), ii)
return on assets (ROA) and WCR, iii) internationalization of the firm and WCR, and iv) industry and WCR
were found. Negative relationships between i) firm's growth (growth) and WCR and ii) firm size and WCR were
found. No significant relationships between i) operating cash flow (OCF) and WCR, ii) Tobin's q and WCR, and
iii) leverage and WCR were found (see Table 4).
In the Canadian manufacturing industry, positive relationships between i) OC and WCR, ii) ROA and WCR, iii)
Leverage and WCR, and iv) internationalization of the firm and WCR were found. Negative relationships
between i) Tobin's q and WCR and ii) firm size and WCR were found. No significant relationships between i)
OCF and WCR and ii) growth and WCR were found (see Table 4).
In the Canadian service industry, positive relationships between i) OC and WCR and ii) ROA and WCR were
found.
Negative relationships between i) growth and WCR and ii) firm size and WCR were found. No significant
relationships between i) OCF and WCR, ii) Tobin's q and WCR, iii) leverage and WCR, and iv)
internationalization of the firm and WCR were found (see Table 4).
Also note that:
A test for multicollinearity was performed. All the variance inflation factor (VIF) coefficients are less than 2
and tolerance coefficients are greater than 0.5.
52.40% (R2 = 0.524) of the variance in the degree of WCR can be explained by the degree of industry, firms
growth, ROA, LNSize, MULTI, Tobin's q, OC, OCF, Leverage in Canada.
35.40% (R2 = 0.354) of the variance in the degree of WCR can be explained by the degree of MULTI,
LNSize, ROA, growth, Tobin's q, OC, leverage, OCF in the Canadian manufacturing industry.
45.70% (R2 = 0.457) of the variance in the degree of WCR can be explained by the degree of MULTI,
Leverage, ROA, growth, OC, LNSize, OCF, Tobin's q in the Canadian service industry.
The analysis of variance (ANOVA) tests are also significant at 0.000.
The Durbin-Watson (D-W) values of 1.877 (entire sample), 2.020 (manufacturing industry), and 1.855
(service industry) indicate less autocorrelations among independent variables of the model (see Table 4).
5. DISCUSSION, CONCLUSION, IMPLICATIONS, AND FUTURE RESEARCH

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The main purpose of this study was to find the factors that influence the working capital requirements in
Canada. This was done by collecting data from the Canadian manufacturing and service industries. Findings
show that the factors that influence working capital requirements are different in the manufacturing and service
industries.
The positive relationship between OC and WCR indicates that the higher the days of operating cycle, the more
working capital would be required by the firm as operative necessity. This finding is consistent with the results
of Nazir and Afza (2008). If Canadian firms want to reduce their investment in working capital to improve the
profitability, the operating cycle needs to be optimized.
The positive relationship between ROA and WCR indicates that firms with higher profits are less concerned
efficient management of working capital. Inefficient management of working capital has a negative impact on
the bottom line of the firm. The results are consistent with the results of Nazir and Afza (2008, 2009) and Taleb
et al. (2010).
The positive relationship between internationalization of the firm and WCR describes that multinational
corporations require and maintain higher level of working capital. The higher level of working capital is not in
the favor of multinational corporations because it may have a negative impact on the profitability during the
economic downturn. Therefore, firms should optimize the working capital requirements.
The negative relationship between firm's growth and WCR indicates that growing firms are more sensitive to the
accumulation of working capital and are not able to hold higher level of working capital. These results
contradict with the findings of Taleb et al. (2010) who found a positive relationship between firms growth and
WCR. This may be because of the different economic environment in which firms operate. The different results
may also be because of the different working capital management policies of different firms from different
countries.
The negative relationship between firm size and WCR describes that larger firms have lower working capital
requirements than the smaller firms. The results contradict with the findings of Nazir and Afza (2009) who
found a non-significant relationship between firm size and WCR.
The positive relationship between leverage and WCR indicate that the higher level of debt requires the higher
level of working capital. Therefore, firms should pay attention to accounts payables and accounts receivables.
The results contradict with the findings of Nazir and Afza (2008, 2009) and Taleb et al. (2010) who found a
negative relationship between leverage and WCR. The results may be different because of the different policies
of the lending institutions from different countries. For example, Canadian financial institutions require firms to
maintain a certain level of liquidity for the fallback position to make liability payments on a yearly basis. This
may not be the case in other countries.
Tobin's q is negatively affecting the working capital of the firm, indicating that efficient working capital
management has no impact on the stock performance of the Canadian manufacturing companies. The findings
of this paper contradict with the findings of Nazir and Afza (2008, 2009) and Taleb et al. (2010) who found a
positive relationship between Tobins q and WCR. This may be because there are other factors such as
profitability of the firm, dividend payments, investors perceptions on stock market, etc., that impact on the
stock performance of the Canadian firms.
5.1 Conclusion
Efficient working capital management is very important to generate the higher rate of return and to maximize
the shareholders wealth. When working capital requirements are not properly managed and are allocated more
than required, they reduce the benefits of short-term investments. If working capital is too low, the company

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may miss a lot of profitable investment opportunities or suffer short-term liquidity crisis, leading to the
degradation of company credit, as it cannot respond efficiently to temporary capital requirements (Nazir and
Afza, 2009, p. 35).
This study found that operating cycle, leverage, ROA, and Tobins q are the internal factors that influence
working capital requirements significantly. The working capital requirements and management practices differ
industry-to-industry and country-to-country. This may be one of the reasons that some of the findings contradict
with the notable previous authors (e.g., Nazir and Afza, 2008, 2009; Taleb et al., 2010). Because working
capital requirements and the management of working capital differ industry-to-industry and country-to-country,
investors should perform careful analysis of the companies before investing in debt and equity securities.
5.2 Limitations
This study is limited to the sample of Canadian manufacturing and service industry firms. The findings of this
study could only be generalized to manufacturing and service firms similar to those that were included in this
research. In addition, the sample size is small.
5.3 Future Research
Future research should investigate generalization of the findings beyond the Canadian manufacturing and
service sector. Future study may include the economic factors such as real GDP growth, business cycle, etc.,
together with the variables that were used in this study.
REFERENCES
Appuhami, B.A. (2008). The impact of firms capital expenditure on working capital management: an empirical
study across industries in Thailand. International Management Review, 4(1), 8-21.
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.
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business
Finance and Accounting, 30(3/4), 573-588.
Filbeck, G. & Krueger, T. (2005). An analysis of working capital management results across industries. MidAmerican Journal of Business, 20(2), 11-18.
Ganesan, V. (2007). An analysis of working capital management efficiency in telecommunication equipment
industry. Rivier Academic Journal, 3(2), 1-10.
Gill, A., Biger, N., & Mathur, N. (2010). The relationship between working capital management and
profitability:
Evidence from United States. Business and Economics Journal, 2010, 1-9.
Lamberson, M. (1995). Changes in working capital of small firms in relation to changes in economic activity.
MidAmerican Journal of Business, 10(2), 45-50.
Nazir, M.S. & Afza, T. (2008). On the factors determining working capital requirements. Proceedings of
ASBBS, 15(1), 293-301.
Nazir, M.S. & Afza, T. (2009). Working Capital Requirements and the Determining Factors in Pakistan. IUP
Journal of Applied Finance, 15(4), 28-38.
Sathyamoorthi, C.R. & Wally-Dima, L.B. (2008). Working capital management: the case of listed retail
domestic companies in Botswana. The Icfaian Journal of Management Research, 7(5), 7-24.
Shin, H.H. & Soenen, L. (1998). Efficiency of working capital management and corporate profitability.
Financial Practice and Education, 8(2), 37-45.
Smith, K.V. (1973). State of the art of working capital management. Financial Management, 2, 50-55.
Soenen, L.A. (1993). Cash conversion cycle and corporate profitability. Journal of Cash Management, 13(4),
53-58.
Taleb, G.A., Zoued, A.N. & Shubiri, F.N. (2010). The Determinants of Effective Working Capital Management
Policy: A Case Study on Jordan. Interdisciplinary Journal of Contemporary Research in Business,
2(4),
248-264.
Weinraub, H.J. & Visscher, S. (1998). Industry practices relating to aggressive conservative working capital
policies. Journal of Financial and Strategic Decisions, 11(2), 11-18.

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Tables
Table 1: Proxy Variables Definitions and Predicted Relationships
Proxy Variables
WCR_TAi
OCi
OCF_TAi
Growthi
ROAi
Qi
Levi
LNSizei
MULTIi
IndDumi

Definitions
Working capital requirements deflated by total assets for firm i
Operating cycle in days of firm i
Operating cash flows deflated by total assets of firm i
Sales growth of firm i
Return on assets for firm i
Tobins q of firm i
Leverage as measured by debt to total assets ratio of firm i
Natural log of total assets as proxy for the size for firm i
Internationalization of firm i
Industry dummy for firm i

Predicted sign
+/
+/
+/
+/
+/
+/
+/
+/
+/
+/

Table 2: Descriptive Statistics of Independent, Dependent, and Control Variables (2008-2010)

Descriptive Statistics (N = 498)

WCR_TA
OC
OCF_TA
Growth
ROA
Tobin's Q
Lev
LNSize
N = Number of observations
Min = Minimum
Max = Maximum
_
x = Mean score
= Standard deviation

Min
-0.05
7.25
-0.08
-0.66
-0.34
-4.51
0.05
0.70

Max
1.77
783.69
0.34
11.62
0.29
19.65
0.80
4.42

_
x
0.45
167.09
0.11
0.25
0.06
2.79
0.39
2.64

0.37
118.38
0.07
1.02
0.08
2.41
0.18
0.72

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Table 3: Pearson Bivariate Correlation Analysis

WCR_TA
WCR_TA
OC
OCF_TA
Growth
ROA
Tobin's Q
Lev
LNSize
MULTI
Industry

WCR_TA
OC
OCF_TA
Growth
ROA
Tobin's Q
Lev
LNSize
MULTI

Entire Sample (N = 498)

OC
OCF_TA Growth ROA Tobin's Q
0.504**
0.061 -0.120 0.246**
0.154*
1
-0.120 0.030 0.023
-0.050
1 -0.010 0.520** 0.301**
1 0.025
-0.054
1
0.183*
1

WCR_TA
1

WCR_TA
1

Lev LNSize
0.088 -0.331**
0.054 -0.077
0.060 -0.021
-0.102 0.016
-0.163* -0.092
0.432** -0.042
1 0.305**
1

MULTI Industry
0.046 0.496**
0.010 0.486**
0.027 0.064
-0.072 0.042
-0.065 0.043
0.001 0.217**
-0.060 0.298**
-0.063 0.063
1 -0.209**
1

Manufacturing Industry (N = 273)

OC
OCF_TA
Growth
ROA Tobin's Q
Lev LNSize
0.235*
-0.025
-0.126
0.229*
-0.060 -0.018 -0.303**
1
-0.301**
-0.010 -0.297**
-0.122 -0.105 -0.186
1
-0.221* 0.534**
0.233* 0.010 0.100
1 -0.220*
0.089 -0.024 0.092
1 0.273** -0.280** -0.055
1 0.271** -0.039
1 0.301**
1
Service Industry (N = 225)
OC OCF_TA Growth
0.415**
0.073
-0.169
1
-0.057
0.019
1
0.065
1

WCR_TA
OC
OCF_TA
Growth
ROA
Tobin's Q
Lev
LNSize
MULTI
** Correlation is significant at the 0.01 level (2-tailed)
* Correlation is significant at the 0.05 level (2-tailed)

ROA Tobin's Q
0.294*
0.092
0.287*
-0.220
0.502** 0.345**
0.124
-0.098
1
0.138
1

Lev LNSize
-0.111 -0.486**
-0.112 -0.072
0.079 -0.134
-0.182 -0.013
-0.073 -0.132
0.509** -0.067
1 0.305**
1

MULTI
0.279**
0.179
-0.062
0.151
-0.036
-0.071
-0.056
0.018
1
MULTI
0.143
0.091
0.134
-0.146
-0.078
0.110
0.060
-0.107
1

39

Economics and Finance Review Vol. 1(3) pp. 30 40, May, 2011
Available online at http://wwww.businessjournalz.org/efr

ISSN: 2047 - 0401

Table 4: OLS Regression Estimates on Factors Influencing Working Capital Requirements a, b, c

Entire Sample (N = 498)
[R2 = 0.524; SEE = 0.262; F = 18.98; ANOVAs Test Sig. = 0.000; Durbin-Watson = 1.877]
Regression Equation (A): WCR_TA = 0.455 + 0.001 OC - 0.419 OCF_TA - 0.046 Growth + 1.219 ROA + 0.000 Tobin's q +
0.222 Lev - 0.170 LNSize + 0.096 MULTI + 0.275 Industry
Unstandardized Coefficients
Standardized Coefficients c
Collinearity Statistics
B
Std. Error
Beta
t
Sig.
Tolerance
VIF
(Constant)
0.455
0.103
4.408 0.000
OC
0.001
0.000
0.277
4.132 0.000
0.685 1.460
OCF_TA
-0.419
0.337
-0.085 -1.243 0.216
0.658 1.519
Growth
-0.046
0.020
-0.126 -2.249 0.026
0.977 1.024
ROA
1.219
0.314
0.266
3.884 0.000
0.654 1.529
Tobin's q
0.000
0.010
-0.003 -0.047 0.963
0.672 1.489
Lev
0.222
0.146
0.107
1.518 0.131
0.615 1.625
LNSize
-0.170
0.031
-0.333 -5.556 0.000
0.853 1.173
MULTI
0.096
0.048
0.117
2.008 0.046
0.909 1.100
Industry
0.275
0.052
0.373
5.287 0.000
0.617 1.621
Manufacturing Industry (N = 273)
[R2 = 0.354; SEE = 0.177; F = 5.545; ANOVAs Test Sig. = 0.000; Durbin-Watson= 2.020]
Regression Equation (B): WCR_TA = 0.285 + 0.001 OC - 0.408 OCF_TA - 0.010 Growth + 1.375 ROA - 0.030 Tobin's q +
0.396 Lev - 0.105 LNSize + 0.126 MULTI
Unstandardized Coefficients
Standardized Coefficients c
Collinearity Statistics
B
Std. Error
Beta
t
Sig.
Tolerance
VIF
(Constant)
0.285
0.105
2.718 0.008
OC
0.001
0.000
0.251
2.497 0.015
0.791 1.264
OCF_TA
-0.408
0.332
-0.137 -1.228 0.223
0.642 1.557
Growth
-0.010
0.042
-0.023 -0.230 0.818
0.835 1.198
ROA
1.375
0.336
0.515
4.097 0.000
0.506 1.978
Tobin's q
-0.030
0.014
-0.220 -2.090 0.040
0.722 1.385
Lev
0.396
0.135
0.323
2.923 0.004
0.651 1.536
LNSize
-0.105
0.032
-0.324 -3.318 0.001
0.839 1.192
MULTI
0.126
0.050
0.236
2.535 0.013
0.923 1.084
Service Industry (N = 225)
[R2 = 0.457; SEE = 0.326; F = 6.954; ANOVAs Test Sig. = 0.000; Durbin-Watson = 1.855]
Regression Equation (C): WCR_TA = 0.903 + 0.001 OC - 0.547 OCF_TA - 0.054 Growth + 0.986 ROA + 0.019 Tobin's q 0.063 Lev - 0.223 LNSize + 0.047 MULTI
Unstandardized
Coefficients
Standardized Coefficients c
Collinearity Statistics
B
Std. Error
Beta
t
Sig.
Tolerance
VIF
(Constant)
0.903
0.194
4.657 0.000
OC
0.001
0.000
0.348
3.403 0.001
0.786 1.272
OCF_TA
-0.547
0.604
-0.104 -0.905 0.369
0.619 1.615
Growth
-0.054
0.028
-0.182 -1.939 0.057
0.933 1.072
ROA
0.986
0.589
0.196
1.675 0.099
0.599 1.669
Tobin's q
0.019
0.016
0.137
1.153 0.253
0.579 1.727
Lev
-0.063
0.290
-0.025 -0.217 0.829
0.599 1.671
LNSize
-0.223
0.052
-0.429 -4.281 0.000
0.819 1.221
MULTI
0.047
0.082
0.055
0.574 0.568
0.891 1.122
a
Dependent Variable: WCR_TA
b
Independent Variables: OC, OCF_TA, Growth, ROA, Tobin's q, Lev, LNSize, MULTI, and Industry
c
Linear Regression through the Origin
SEE = Standard Error of the Estimate

40