Cash flows and financial performance in the industrial sector of Saudi Arabia: With special reference to Insurance and Manufacturing Sectors
-
DOIhttp://dx.doi.org/10.21511/imfi.17(4).2020.07
-
Article InfoVolume 17 2020, Issue #4, pp. 76-84
- Cited by
- 1453 Views
-
3653 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
A firm with proper cash flow management can increase its financial performance, while improper management might lead to financial failure. Therefore, it is significant for a firm to manage cash inflows and outflows properly. The current study investigates the effect of cash flow from operations (CFOs) on the financial performance of insurance and manufacturing companies in Saudi Arabia. The data were extracted from companies’ annual reports by considering Return on Assets (ROA) and Return on Equity (ROE) as dependent variables, CFOs as an explanatory variable, firm size (SIZE) and Leverage (LEV) as control variables, and an industry dummy. The results report a positive and significant association between financial performance (ROA and ROE) and operating cash flows (CFOs), and a negative association for SIZE and LEV. Therefore, the study concludes that the firms’ operating cash flows in the insurance and manufacturing sectors in Saudi Arabia affect financial performance.
- Keywords
-
JEL Classification (Paper profile tab)L25, L61, M41
-
References36
-
Tables5
-
Figures0
-
- Table 1. Definitions of dependent and independent variables
- Table 2. Descriptive statistics of study variables
- Table 3. Correlation analysis of study variables
- Table 4. Result of regression analysis
- Table 5. Result of regression analysis
-
- Abeyrathna, S. P. G. M., & Priyadarshana, A. J. M. (2019). Impact of Firm Size on Profitability (Special reference to listed manufacturing companies in Sri Lanka). International Journal of Scientific and Research Publications, 9(6), 561-564.
- Afrifa, G. A. (2016). Net working capital, cash flow, and performance of UK SMEs. Review of Accounting and Finance, 15(1), 21-44.
- Almajali, A. Y., Alamro, S. A., & Al-Soub, Y. Z. (2012). Factors affecting the financial performance of Jordanian insurance companies listed at the Amman Stock Exchange. Journal of Management Research, 4(2), 266.
- Al-nimer, M., & Alslihat, N. (2015). The Effect of Profitability Ratios on Market Capitalization in Jordanian Insurance Companies Listed in Amman Stock Exchange. Journal of Economics and Sustainable Development, 6(6), 140-146.
- Alnori, F. (2020). Cash holdings: Do they boost or hurt firms’ performance? Evidence from listed non-financial firms in Saudi Arabia. International Journal of Islamic and Middle Eastern Finance and Management, 13(5), 919-934.
- Amuzu, M. S. (2010). Cash flow ratio as a measure of performance of listed companies in emerging economies: The Ghana example (Unpublished Ph.D. Thesis).
- Atieh, S. H. (2014). Liquidity analysis using cash flow ratios as compared to traditional ratios in the pharmaceutical sector in Jordan. International Journal of Financial Research, 5(3), 146-158.
- Atrill, P., & McLaney, E. (2011). Accounting and Finance for Non-Specialists. Prentice Hall Publications.
- Augustine, N. I., & Jacob, I. A. (2017). Cash management and performance of listed firms in Nigeria. Journal of Economics, Management, and Trade, 18(1), 1-13.
- Azhar, K. A., & Ahmed, N. (2019). Relationship between Firm Size and Profitability: Investigation from Textile Sector of Pakistan. International Journal of Information, Business and Management, 11(2), 62-73.
- Bhandari, S. B., & Iyer, R. (2013). Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), 667-676.
- Bradbudy, M. (2011). Direct or Indirect Cash Flow Statements? Australian Accounting Review, 21(2), 124-130.
- David, C. O., Grace, O., Lugard, O. K., & Regina, O. (2018). The Potency of Cash Flow in Predicting Corporate Performance. Account and Financial Management Journal, 3(6), 1591-1601.
- Dimitrijevic, D. (2015). The Detection and Prevention of Manipulations in the Balance Sheet and the Cash Flow Statement. Economic Horizons, 17(2), 135-150.
- Farshadfar, S., Ng, C., & Brimble, M. (2008). The relative ability of earnings and cash flow data in forecasting future cash flows. Pacific Accounting Review, 20(3), 254-268.
- Gheshlaghi, F. D. R., Ahmadzadeh, Y., & Faal, F. (2014). The cash flow statement’s component effect on management performance in firms enlisted in the Tehran Stock Exchange. Journal of Management and Accounting Studies, 2(1), 14-21.
- Gombola, M. J., & Ketz, J. E. (1983). A Note on Cash Flow and Classification Patterns of Financial Ratios. The Accounting Review, 58(1), 105-114.
- Günay, F., & Fatih, E. C. E. R. (2020). Cash Flow Based Financial Performance of Borsa İstanbul Tourism Companies by Entropy-MAIRCA Integrated Model. Journal of Multidisciplinary Academic Tourism, 5(1), 29-37.
- Gupta, G., & Mahakud, J. (2019). Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy. Financial Innovation, 5(1), 1-28.
- Habrosh, A. A. (2017). Impact of cash flow, profitability, liquidity, and capital structure ratio on predict financial performance. Advanced Science Letters, 23(8), 7177-7179.
- Hirdinis, M. (2019). Capital Structure and Firm Size on Firm Value Moderated by Profitability. International Journal of Economics and Business Administration, 7(1), 174-191.
- Ikechukwu, O., Nwakaego, D. A., & Celestine, A. (2015). The Effect of Cash Flow Statement on Companies Profitability (A Study of Some Selected Banks in Nigeria). African Journal of Basic & Applied Sciences, 7(6), 350-356.
- Innocent, E. C., Ikechukwu, A. C., & Nnagbogu, E. K. (2014). The effect of financial leverage on financial performance: Evidence of quoted pharmaceutical companies in Nigeria. IOSR Journal of Economics and Finance, 5(3), 17-25.
- Jones, S., Romano, C. A., & Smyrnios, K. X. (1995). An evaluation of the decision usefulness of cash flow statements by Australian reporting entities. Accounting and Business Research, 25(98), 115-129.
- Khan, W., Naz, A., Khan, M., Khan, W., & Ahmad, S. (2013). The impact of capital structure and financial performance on stock returns ‘a case of Pakistan textile industry’. Middle-East Journal of Scientific Research, 16(2), 289-295.
- Liman, M., & Mohammed, A. (2018). Operating cash flow and corporate financial performance of listed conglomerate companies in Nigeria. Journal of Humanities and Social Science, 23(2), 1-11.
- Miletic, D. (2014). Cash Flow Statement: Assessment of Situation and Application Problems in Serbia. Industrija, 42(4), 99-114.
- Nguyen, D. D., & Nguyen, A. H. (2020). The Impact of Cash Flow Statement on Lending Decision of Commercial Banks: Evidence from Vietnam. Journal of Asian Finance, Economics, and Business, 7(6), 085-093.
- Ogbeide, S., & Akanji, B. (2017). A study on the relationship between cash-flow and financial performance of insurance companies: Evidence from a developing economy. Revista de Management Comparat International, 18(2), 148-157.
- Rajkumar, P. (2014). Impact of Financial Leverage on Financial Performance: Special Reference to John Keells Holdings PLC in Sri Lanka. Scientific Research Journal, 2(2), 15-20.
- Razafindrambinina, D., & Anggreni, T. (2017). Intellectual capital and corporate financial performance of selected listed companies in Indonesia. Malaysian Journal of Economic Studies, 48(1), 61-77.
- Salehi, M., Yekta, M. B., & Ranjbar, H. R. (2018). The Impact of Changes in Cash Flow Statement items on Audit Fees: Evidence from Iran. Journal of Financial Reporting and Accounting, 18(2), 225-249.
- Sayari, N., & Mugan, F. N. C. S. (2013). Cash Flow Statement as an Evidence for Financial Distress. Universal Journal of Accounting and Finance, 1(3), 95-103.
- Sundas, S. (2019). Firm Size and Financial Leverage Choice Evidence from an Emerging Economy. International Journal of Commerce and Finance, 5(1), 25-33.
- Ukhriyawati, C. F., Ratnawati, T., & Riyadi, S. (2017). The influence of asset structure, capital structure, risk management, and good corporate governance on financial performance and value of the firm through earnings and free cash flow as an intervening variable in banking companies listed in Indonesia stock exchange. International Journal of Business and Management, 12(8), 249-260.
- Velnampy, T., & Kajananthan, R. (2013). Cash Position and Profitability of Telecommunication Sector in Srilanka. Greener Journal of Social Sciences, 3(6), 324-333.