Determinants of Working Capital Requirements: Evidence from Selected Non-financial Firms Listed on the Johannesburg Securities Exchange

Emmanuel Oseifuah
Working Capital is an important aspect of corporate financial management because it affects profitability, liquidity and firm value (Smith, 1973; Deloof, 2003; Nazir and Afza, 2008).For this reason, firms try to keep an optimal (desirable) level of working capital that maximizes their value. In essence, working capital management is vital for the survival of businesses, regardless of their size.Previous studies suggest that working capital requirement of an enterprise is influenced by numerous
more » ... actors such as firm size, GDP growth rate, inflation, foreign exchange rates, among others. The study analysed the key endogenous (internal) and exogenous (external) factors influencing working capital requirements and WCM of a sample of 5large non-financial firms listed on the JSE. Data for the study was collected using a semi-structured questionnaire. The result revealed that sales growth, capital expenditure and debtors' management are the three most important endogenous factors influencing working capital requirement of the sampled firms. Other factors identified are inventory ordering efficiency, board requirements, centralization of supply, operating expenditure and products offered. The study further revealed that interest rates, foreign exchange rate, economic growth and inflation rate are the four key exogenous factors influencing working capital requirements of the sampled firms. Additionally, 40% of the sampled firms indicate that sales affect WCM to a very high extent while 60% indicate that capital expenditure affect WCM to a high extent. Finally, 60% indicate that debtors' terms affect WCM to a high extent. 60% of respondents indicate that economic growth some extent to a very high extent affect WCM while 80% indicate that interest rates affects WCM from to some extent to a high extent. 20% are of the view that exchange rates affect WCM to a very high extent.