The Impact of Working Capital Efficiency on Stock Returns: Evidence from Palestine Exchange

Abstract

The major aim of this study tends to examine the impact of working capital management on the stock prices of the industrial corporations listed on the Palestine Exchange; PEX. Hence, this paper refers to the financial data of the listed industrial corporations in the PEX from 2007-2014 as it is a trustworthy sample and highly participates in achieving the aforementioned objective. It also employs a number of statistical tests, for instance, it employs(descriptive statistics, Pearson's correlation, and the linear regression tests). Consecutively, this paper selects ten listed Palestinian industrial corporations to examine its hypotheses [80 firm-years]. Consistent with its goals, this paper elicits the following findings:(1) The industrial corporations listed on the PEX are inefficient in managing the working capital. (2) There is a negative and insignificant impact of the cash conversion cycle (CCC) on the stock returns of the industrial corporations listed on the PEX. (3) There is no impact of CCC components (ARTD, ITD, and PTD) on the stock returns of the industrial corporations listed on the PEX. Finally yet importantly, this valuable study highlights a set of highly constructive recommendations. From this point, it recommends the industrial corporations listed on thePEXto workon concentrating their efforts towardsteering the working capital management in an efficient manner so as to enhance this eminent sector. It also recommends the Palestine Exchange to put into effect designing efficient policy for the working capital management by the listed corporations and making it an obligatory required item.