The Effect of the Working Capital Management Efficiency on the Firm Value: Evidence from Palestine Exchange رسالة دكتوراة

Abstract

This doctoral dissertation examines the impact of Working Capital Management Efficiency (WCME) on firm value, with a novel focus on the mediating role of financial distress, using empirical evidence from companies listed on the Palestine Exchange (PEX) during the period 2012–2022. The study is grounded in the understanding that efficient working capital management is essential for enhancing liquidity, profitability, and long-term firm sustainability, particularly in emerging and economically volatile markets such as Palestine. The research employs the Net Trade Cycle (NTC) as the primary measure of WCME, disaggregated into Inventory On-Hand Days (IOD), Sales Outstanding Days (SOD), and Payables Outstanding Days (POD). The firm value is measured using Tobin’s Q ratio. The sample includes non-financial publicly listed firms across various sectors, excluding banks and insurance companies due to their distinct capital structures and regulatory environments. A central contribution of this study lies in its original investigation of financial distress as a mediating variable, a dimension largely overlooked in prior regional studies. Financial distress is operationalized using accounting-based indicators and integrated into the analytical framework to assess how it influences, and is influenced by, the WCME–firm value relationship. The study also explores the moderating effect of industry type, recognizing sectoral heterogeneity in working capital dynamics. The research methodology is based on panel data regression techniques, including mediation and moderation analysis, applied to a longitudinal dataset spanning eleven years. Results demonstrate a significant negative association between NTC and firm value, confirming that shorter working capital cycles improve financial performance. Moreover, financial distress is found to significantly mediate this relationship, amplifying the adverse effects of inefficient working capital practices, particularly during periods of economic instability. This dissertation contributes theoretically by extending corporate finance models through the integration of financial distress into the WCME framework. Practically, it offers actionable insights for financial managers and policymakers seeking to optimize liquidity, prevent insolvency, and enhance firm value under constrained and uncertain economic conditions. The findings underscore the strategic importance of proactive working capital policies in mitigating financial vulnerability in fragile markets