The effect of working capital management and credit management policy on Jordanian banks’ financial performance
-
DOIhttp://dx.doi.org/10.21511/bbs.16(4).2021.19
-
Article InfoVolume 16 2021 , Issue #4, pp. 229-239
- Cited by
- 986 Views
-
474 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study investigated the impact of Working Capital Management (WCM) and Credit Management Policy (CMP) on the Financial Performance (FP) of Jordanian banks (JB). The study data were obtained from 16 Jordanian banks listed on the Amman Stock Exchange (ASE) between 2017 and 2020. The study used panel data to investigate the relationship between the two independent variables, WCM and CMP, and the dependent variable FP; 64 financial reports to Jordanian banks were analyzed to measure this relationship. To test hypotheses, multiple regression was used. The study found a statistically significant relationship between WCM and FP, and the independent variable was able to explain 34.1% of the changes that occur in the dependent variable. In addition, the outcome approved that there is a statistically significant relationship between CMP and FP. Furthermore, CMP explained about 41.8% of changes in the dependent variable. The findings of this study indicate support for the banks’ performance; a bank may need to lengthen client credit terms, prolong the cash transfer cycle, and require a more extended payment period when judging on WCM.
Acknowledgment
The publication of this research has been supported by the Deanship of Scientific Research and Graduate Studies at Philadelphia University – Jordan.
- Keywords
-
JEL Classification (Paper profile tab)G21, G32, M41
-
References40
-
Tables5
-
Figures0
-
- Table 1. Method of measuring the variables
- Table 2. Jordanian banks
- Table 3. Descriptive statistics
- Table 4. Multiple regression test for working capital management
- Table 5. Multiple regressions to test credit management policy
-
- Abuzayed, B. (2012). Working capital management and firms’ performance in emerging markets: the case of Jordan. International Journal of Managerial Finance, 8(2), 155-179.
- Akinleye, G. T., Olarewaju, O. M., & Fajuyagbe, B. S. (2019). Corporate governance and financial performance: an empirical analysis of selected multinational firms in Nigeria. Problems and Perspectives in Management, 17(1), 11-18.
- Alavinasab, S. M., & Davoudi, E. (2013). Studying the relationship between working capital management and profitability of listed companies in Tehran stock exchange. Business Management Dynamics, 2(7), 1-8.
- Alawaqleh, Q. A. (2020). Relationship between the application of IFRS and the accounting information quality in Jordan. Investment Management and Financial Innovations, 17(4), 111-120.
- Alawaqleh, Q. A., & Almasria, N. A. (2021). The Impact of Audit Committee Performance and Composition on Financial Reporting Quality in Jordan. International Journal of Financial Research, 12(3), 55-69.
- Alawaqleh, Q. A., Almasria, N. A., & Alsawalhah, J. M. (2021). The Effect of Board of Directors and CEO on Audit Quality: Evidence from Listed Manufacturing Firms in Jordan. The Journal of Asian Finance, Economics, and Business, 8(2), 243-253.
- Al-Husainy, N. H. M., & Jadah, H. M. (2021). The Effect of Liquidity Risk and Credit Risk on the Bank Performance: Empirical Evidence from Iraq. IRASD Journal of Economics, 3(1), 58-67.
- Almasria, N. A. (2018). The relationship between internal corporate governance mechanisms and the quality of external audit process-empirical evidence from Jordan (Doctoral Thesis). University of Bedfordshire.
- Almasria, N., Airout, R. M., Samara, A. I., Saadat, M., & Jrairah, T. S. (2021). The role of accounting information systems in enhancing the quality of external audit procedures. Journal of Management Information and Decision Sciences, 24(7), 1-23.
- Amman Stock Exchange (ASE). (2021). Official site.
- Appiah-Adu, K. (1998). Market orientation and performance: empirical test in a transition economy. Journal of Strategic Marketing, 6(1), 25-45.
- Aydin, D. (2021). Consumption response to credit expansions: Evidence from experimental assignment of 45,307 credit lines. American Economic Review.
- Bhattacharya, H. (2021). Working capital management: Strategies and techniques. PHI Learning Pvt. Ltd.
- Boisjoly, R. P. (2009). The cash flow implications of managing working capital and capital investment. The Journal of Business and Economic Studies, 15(1), 98-108.
- Deloof, M., & Jegers, M. (1996). Trade credit, product quality, and intragroup trade: some European evidence. Financial Management, 25(3), 33-43.
- Ezejiofor, R. A., Adigwe, P. K., & Racheal, J.-A. (2015). The credit management on liquidity and profitability positions of a manufacturing company in Nigeria. European Journal of Research and Reflection in Management Sciences, 3(3), 32-48.
- Fidelis, A., & Umoffong, N. J. (2020). Effect of Credit Management Policy on Financial Performance of Listed Consumer Goods Companies in Nigeria. Research Journal of Finance and Accounting, 11(10), 156-163.
- Gatuhu, R. N. (2013). The effect of credit management on the financial performance of microfinance institutions in Kenya (Doctoral Thesis). University of Nairobi.
- Ittner, C., & Larcker, D. (1998). Innovation in performance measurement: trends and research implication. Journal of Management Accounting Research, 10, 205-38.
- Jibrin, M. S., Ifurueze, M. S. K., & Ejura, S. B. (2013). The impact of effective management of credit sales on profitability and liquidity of food and beverage industries in Nigeria. Global Journal of Management and Business Research, 13(2).
- Juan García-Teruel, P., & Martínez Solano, P. (2007). Effects of working capital management on SME profitability. International Journal of Managerial Finance, 3(2), 164-177.
- Lazaridis, I., & Tryfonidis, D. (2006). Relationship between working capital management and profitability of listed companies in the Athens stock exchange. Journal of Financial Management and Analysis, 19(1), 26-35.
- Mathuva, D. (2010). The Influence of working capital management components on corporate profitability: A survey on Kenyan listed firms. Research Journal of Business Management, 4(1), 1-11.
- Mazumder, M. N. (2014). Credit Management Policy of Janata Bank Ltd. BRAC Business School Major in Finance, BRAC University.
- Mbu-Ogar, G. B., Effiong, S. A., & Abang, J. O. (2017). Corporate governance and organizational performance: evidence from the Nigerian manufacturing industry. IOSR Journal of Business and Management, 19(8), 46-51.
- Mburu, I. M., Mwangi, L. W., & Muathe, S. M. (2020). Credit Management Practices and Loan Performance: Empirical Evidence from Commercial Banks in Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 2(1), 51-63.
- Munangi, E., & Bongani, A. (2020). An empirical analysis of the impact of credit risk on the financial performance of South African banks. Academy of Accounting and Financial Studies Journal, 24(3), 1-15.
- Nazir, M. S., & Afza, T. (2009). Impact of Aggressive Working Capital Management Policy on Firms’ Profitability. The IUP Journal of Applied Finance, 15(8), 19-30.
- Niresh, J. A. (2012). Working capital management & financial performance of manufacturing sector in Sri Lanka. European Journal of Business and Management, 4(15), 23-30.
- Odhiambo, J. (2011). The relationship between working capital management and financial performance of deposit taking savings and credit co-operative societies licensed by SACCO societies regulatory authority in Nairobi county.
- Otuya, S., & Eginiwin, E. J. (2017). Inventory Management and SMEs Profitability. A Study of Furniture Manufacturing, Wholesale and Eatery Industry in Delta State, Nigeria. Journal of Finance and Accounting, 5(3), 75-79.
- Raheman, A., & Nasr, M. (2007). Working capital management and profitability – case of Pakistani firms. International Review of Business Research Papers, 3(1), 279-300.
- Salim, B. F., & Bilal, Z. O. (2016). The impact of liquidity management on financial performance in Omani banking sector. International Journal of Accounting, Business and Economic Research, 14(1), 545-565.
- Seyoum, M. (2021). Assessment on the credit management practice of ENAT bank (Doctoral Thesis). St. Mary’s University School of Graduate Studies.
- Singh, H. V., Pandey, A., Shrivastava, A. K., Raizada, A., Singh, S. K., & Singh, N. (2013). Prognostic value of neuron specific enolase and IL-10 in ischemic stroke and its correlation with degree of neurological deficit. Clinica Chimica Acta, 419, 136-138.
- Taani, K. (2012). Impact of working capital management policy and financial leverage on financial performance: Empirical evidence from Amman stock exchange–listed companies. International Journal of Management Sciences and Business, Research, 1(8), 10-17.
- Uguru, L. C., Chukwu, U. C., & Elom, J. O. (2018). Effect of Working Capital Management on the Profitability of Brewery Firms in Nigeria. IOSR Journal of Economics and Finance, 9(2), 9-20.
- Wambia, W. O., & Jagongo, A. (2020). The effects of working capital management practices on the financial performance of insurance companies in Kenya. International Academic Journal of Economics and Finance, 3(5), 103-120.
- Wheelen, T., & Hunger, D. (2002). Strategic Management and Business Policy (8th ed.). Prentice-Hall, Englewood Cliffs, NJ.
- Zalaghi, H., & Godini, M. (2019). The moderating role of firms’ characteristics on the relationship between working capital management and financial performance. Advances in Mathematical Finance and Applications, 4(1), 71-88.