The Impact of Aggressive Working Capital Management Policy on Firm’s Value: A Mediating Effect of Company’s Profitability

Rosyeni Rasyid^1, , Syukri Lukman², Tafdil Husni² and Adrimas²

¹Economic Department, Universitas Negeri Padang, Padang, Indonesia

²Economic Department, Universitas Andalas, Padang, Indonesia

Cite this paper:
Rosyeni Rasyid, Syukri Lukman, Tafdil Husni and Adrimas. The Impact of Aggressive Working Capital Management Policy on Firm’s Value: A Mediating Effect of Company’s Profitability. Journal of Business and Management Sciences. 2018; 6(1):16-21. doi: 10.12691/jbms-6-1-4

Abstract

This study investigates the mediating effect of the company’s profitability on the link between the aggressive working capital management policy and the value of the firm. The study has been conducted to 158 non-financial firms which have managerial ownership and listed on the Indonesia Stock Exchange from 2012 to 2015. Results of this research show that aggressive working capital management policy in the form of aggressive financing policy has a negative and significant impact on profitability and firm’s value, while, the aggressive investment policy has a positive and significant impact on profitability. However, the aggressive working capital management policy has no significant impact on the firm value. Profitability has a positive and significant effect on firm’s value, and profitability able to mediate aggressive working capital management policy on the firm’s value. Accordingly, to increase the company’s market value on the non-financial firms which have managerial ownership, the manager has to increase profitability by optimizing investment on current asset and by adding the proportion of long-term financing in working capital. Finally, this study has also discussed some limitations and future research.

Keywords:
aggressive investment policy aggressive financing policy profitability value of the firm

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