Analysis the relationship between working capital policy and operating risk : an empirical study on Jordanian industrial companies

الملخص EN

The study aims to investigate the relationship between the aggressive / conservative working capital policies for 59 industrial companies listed at the Amman Stock Exchange for a period of 2004-2007.

The impact of aggressive / conservative working capital investment and financing policies has been examined through cross-sectional regression models between working capital policies and profitability as well as the risk of the firms.

Efficient management of working capital is a fundamental part of the overall corporate strategy to create the shareholders’ value.

Firms try to keep an optimal level of working capital that maximizes their value.

The optimal level of working capital is determined to a large extent by the methods adopted for the management of current assets and liabilities.

It requires continuous monitoring to maintain proper level in various components of working capital i.e.

cash receivables, inventory and payables etc.

he result indicates a negative relationship between the profitability measures of firms and degree of aggressiveness of working capital investment and financing policy.

Moreover, the present study validates the findings of Carpenter and Johnson (1983) that there is no relationship between the level of current assets and liabilities and the risk of the firms.