The Determinants of Working Capital Requirements in Palestinian Industrial Corporations

Suleiman M. Abbadi, Rasha T. Abbadi

Abstract


This study is trying to find the variables that determine working capital for Palestinian industrial firms. We used a sample of 11 industrial firms that are listed on the Palestine Securities Exchange. We used Working Capital as the endogenous variable, and some financial and economic variables, such as cash conversion cycle, operating cash flow, leverage, firm size, return on assets, interest rate on loans, and economic growth rate, as exogenous variables.

An econometric model was established and parameters were estimated based on the panel data for 11-industrial companies for eight years (2004-2011). The study found that the cash conversion cycle, return on assets and operating cash flow are a significant determinant and positively related to the working capital requirements, while leverage and firm size are significant but negatively related to the working capital requirements. On the other hand economic variables such as: the interest rate and real GDP growth rate has no significant impact on the working capital. These findings are consistent with several previous studies, for other countries such as Jordan, Brazil, Pakistan, India, Greece, Thailand, Cyprus and Sri Lanka. In addition, it was found that Palestinians firms maintain a sizable working capital which may be due to a long cash conversion cycle (over six months) and to conservative policies due to instable economic and political conditions.


Full Text: PDF DOI: 10.5539/ijef.v5n1p65

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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