The Reflection of Exchange Rate Exposure and Working Capital Management on Manufacturing Firms of Pakistan

  • Sarfraz Hussain, Asan Ali Golam Hassan, Asifah sohail

Abstract

This study examines the exchange rate exposure effect on a firm’s financial performance and international contracts. This study additionally investigates the interaction relationship between exchange rates and receivables, payables days agreements. Empirical analysis obtained a period from 1999 to 2015, by utilizing static panel data of 302 non-financial companies of KSE. The study is utilizing 4,898 firm-year observations. The outcomes reveal that net exports, cash conversion cycle, and exchange rates have a negative association with return on assets. The negative association between the cash conversion cycle and return on assets means that if firms introduce a lengthy cash conversion cycle that affect negatively on return on assets. On the other side, a positive association found between receivable days, payable days, inventory turnover ratio, net exports, with return on assets. However, the exchange rate has a negative association with return on assets. Firms will get high profits ratio on the depreciation of the domestic currency, which is supported by economic theories. The increase in sales and export positively impact the profit margin. This study has not beyond the limitations. The sample is taken from the 4,898 non-financial firms-year observation of KSE. The research paper firm’s selection criteria are selected firms must be engaged in international trade. The study is helpful for investors and international traders of emerging economies.  

Published
2020-04-21