The relationship between the management of payables and the return to investors
Loading...
Date
Authors
Moodley, T.
Ward, Michael
Muller, C.
Journal Title
Journal ISSN
Volume Title
Publisher
Routledge
Abstract
Effective working capital management assists a firm in achieving improved liquidity through the management of the components of receivables, inventory, and payables. Previous studies have established that changes in working capital have a strong positive correlation to profitability and that whilst changes to receivables and inventory have a positive correlation to profitability, changes in payables have an inverse relationship. The inverse correlation between payables and profitability is contrary to the theory that advocates extending payment terms as a means of managing working capital and improving liquidity. We apply a buy-and-hold portfolio methodology to an extensive database of Johannesburg Stock Exchange (JSE) listed South African companies over the period 1986 to 2014. We find that for those companies in industries that have a significant investment in payables, there is a significant positive association between changes in payable days and shareholder return, which supports the general theory of working capital management.
Description
Keywords
Working capital management, Accounts payable, Management of payables, Return to investors
Sustainable Development Goals
Citation
T. Moodley, M. Ward & C. Muller (2017) The relationship between the management of payables and the return to investors, South African Journal of Accounting Research, 31:1, 35-43, DOI: 10.1080/10291954.2015.1105555.