Working Capital Management, Corporate Performance and Financial Constraints: Evidence from Tehran Stock Exchange

This study aimed to investigate the relationship between working capital management and corporate performance and the impact of financing constraints on the relationship. We used net business cycle in order to measure the working capital management and Tobin's Q Ratio to measure the financial performance and finally, to determine financial constrained firms and firms without financial constraints we used three proxies: KZ, KZir and WW. The sample includes 196 companies listed in Tehran Stock Exchange and se analyzed a total of 1568 observations (firm-year) during the years of 2007 to 2014. For data analysis and hypothesis testing were conducted using multivariate linear regression using panel data. The results of testing showed that there is a negative and significant regression between the net trade cycle and corporate performance. Also, there is a non-linear and U-shaped relationship between the net business cycle and corporate performance. According to the results, working capital management plays an important role in the company's performance and, as far as possible, companies can reduce the net trade cycle for their value. The results indicate that companies that are faced with financial constraints have less investment in working capital than those without financial constraints. As a result, financial constraints have been a major factor in the level of investment in working capital.