Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
Does Working Capital and Financial Structure Impact
Profitability of Islamic and Conventional Banks
Differently?
Ejaz Aslam
PhD Scholar, Institute of Islamic Banking
University of Management and Technology
Lahore, Pakistan
ejazaslam95@gmail.com
Farrukh Ijaz
Academics Officer, Institute of Islamic Banking,
University of Management and Technology
Lahore, Pakistan
Anam Iqbal
MS Scholar, School of Business and Economics
University of Management and Technology
Lahore, Pakistan
Abstract
T
he essential factor for the financial growth of a country is a stable banking
system. Over the past few years, Islamic banking industry of Pakistan has
grown substantially; however, it faces many challenges regarding its
financial stability. This study examines the impact of working capital and financial
structure on Pakistan banking sector profitability. The study used generalize least
square (GLS) estimation analysis on 5 Islamic banks over the period 2006 to 2014
and 15 conventional banks from 2008 to 2014. Return on assets (ROA), return on
equity (ROE) and net income (NI) are used as dependent variables. Working
capital and proportion of funds provided by bank creditors are used as
independent variables. Bank size, deposit ratio, gross domestic product (GDP)
and inflation (CPI) are used as control variables to control heterogeneity and colinearity among variables. Study found an increase in working capital results
decrease in the profitability of Islamic and conventional banks. However, financial
leverage has statistically significant positive impact on profitability of Islamic
banks and vice versa for conventional banks.
Keywords: Financial Structure, Working Capital, Islamic Banks, Conventional
Banks, Profitability
Aslam, Ejaz., Ijaz, Farrukh., & Iqbal, Anam. (2016). Does Working
Capital and Financial Structure Impact Profitability of Islamic and
Conventional Banks Differently? Islamic Banking and Finance Review,
3 (1), 50-67. ISSN 2221-5239. © 2016
50
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
1. Introduction
Banking sector plays an important role in growth of financial system, but now a
day’s banking industry faces many challenges, such as regulatory, liquidity and
working capital requirements, that influence the banking industry significantly.
These challenges demands prudent decisions to solve the problems, important for
existence of any institution for their sustainable prolongation, thus, not only
reduce bankruptcy risk but also enhances the profitability of the banks. There is
conflict of interest between two groups; ones who provide funds to the banks
(depositors/investors) and look forward to high profitability on their investments.
Secondly, bank management who face difficulties to manage the balance of
liquidity to attain the higher profitability by overseeing and investigating financial
leverage and working capital, and with deep contemplation to accomplish better
results on the spending money. An organization, either profit oriented or not,
regardless of its size and business nature requires critical measure of working
capital (Mukhopadhyay, 2004).
Working capital is one of the most crucial factor for maintaining liquidity,
profitability, and sustainable growth in the business (Gul et al., 2013). Raheman
and Nasr (2007) recommended that organizations that manage their cash,
inventories and accounts receivables able to build most from their resources.
Moreover, Ricci and Vito (2000) stated that motivation behind working capital
management is to deal with the company's present records to achieve financial
harmony during profit (return) and loss (risk) phase. The working capital
management is seen as one of the key mechanism to meet the short term
objectives of an organization. Generally, working capital is measured by cash in
hand, receivables, account payable and cash conversion cycle.
Financial structure defines the debt to equity formation of the organizations.
Financial structure is ratio of total liabilities (short term and long term liabilities)
over the company’s shareholders equity. This ratio focuses on liabilities and equity
and is effective to describe how organizational finances and operations are
growing through various sources of funds (Modigliani & Miller, 1958). Shubita
and Alsawalhah (2012) recommended that a firm with high profit depend
excessively on equity as its main financing decision. Organizations must keep up
an optimal level of working capital by overlook few dynamic speculation
opportunities and endure fleeting liquidity crisis rather holding lower working
capital. In contrast, if organizations hold working capital more than required,
51
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
illustrating company management inefficient and weaken to take benefit from
short term investments (Nazir and Afza, 2009). Bagchi & Khamrui (2012) found
positive association between the working capital and profitability of organization.
Deloof (2003) and Juan García-Teruel and Martinez-Solano (2007) measured that
profitability of an organization, either estimated by return on equity (ROE) or
return on asset (ROA), could enhanced by the efficient management of working
capital and optimized capital structure. Therefore, the present study is conducted
to investigate the impact of working capital and financial structure on profitability
of Islamic and conventional banks in Pakistan. The study used number of internal
and external factors (as stated by the study) have been used to check their
potential impact on Islamic and conventional banks’ profitability, that allow
bank’s management and regulatory bodies to steer these factors in their favor.
The paper is composed of five sections. Section 1 provides the significance and
objective behind conducting the study. Section 2 provides a background of the
existing research studies, relating bank profitability to its determinants that have
been stated to formulate the current research hypothesis. Section 3 describes
research methodology; data, variables and research method of the study. Section 4
presents findings of the study. Conclusion is offered in the final section.
2. Literature Review
Working capital and financial structure are the central components of corporate
finance as they significantly important for the business development and
imperative to financial wellbeing of small as well as large organizations (Nyamao,
Patrick, Martin, Odondo, & Simeyo, 2012). Moreover, working capital
management lies in efficient assets and current liabilities treatment so that it
maintains strategic detachment from undue interests to assure the returns
(Mehmet & Eda, 2009). Earlier studies suggested that working capital
management enhances the profitability of the firms (Deloof, 2003; Mathuva,
2009; Bagchi & Khamrui, 2012). In contrast, many study found negative
relationship between the profitability and working capital management (Juan
García-Teruel & Martinez-Solano, 2007; Raheman & Nasr, 2007; Raza, Bashir,
Latif, Shah & Ahmed, 2015).
Now a day, working capital management and financial structure has been
considered as the focal issues in the financial administration by the official/chiefs
52
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
(Haider et al., 2011; Lamberson, 1995). Harris (2005) observed that working
capital management and financial structure is a basic way of guaranteeing firm
capacity in short term to subsidize the disparity between a product and customer.
Filbeck and Krueger (2005) scrutinized that keeping up an ideal parity among all
working capital segments is the significant goal of working capital administration.
The success of an entity vigorously depends on the financial administration ability
to proficiently deal with working capital and financial structure.
Bashir (2003) investigated the determinants of profitability in 14 Islamic banks of
8 nations (UAE, Egypt, Kuwait, Jordan, Bahrain, Sudan, Qatar and Turkey) for
the period 1993-1998 via ROA and ROE. The OLS regression reported that high
capital-to-asset and loan-to-asset ratios lead to higher profitability. The regression
results also found that taxes affect the bank profitability negatively. Hadi (2004)
examined the impact of accounting ratios on the profitability of the firms traded
on the Kuwait exchange market. The study chooses the banking sector because of
its large market capitalization in the Kuwaiti economy. Eight banks were selected
as a sample for the period 1997 to 1999 with total of 24 observations. ROA, ROE
and earnings assets ratio (EAR) were used as a proxy for measuring profitability.
The study findings revealed that accounting information has been very useful for
the analysts and shareholders as all financial variables (size, total deposits, working
capital and leverage) have positive association to the profitability.
Al-Tamimi (2005) studied the determinants of UAE banks’ profitability from
1987-2002 and found that banks’ portfolio and size have statistically significant
impact on performance and profitability (ROA and ROE). Filbeck and Krueger
(2005) emphasized that the success of any business depends deeply on its ability
to effectively and efficiently managing the working capital, say account
receivables, inventory and payables. Singh and Sharma (2006) measured influence
of corporate financial fundamental factors on profitability of the Bombay Stock
Exchange listed companies for financial year 2001 to 2005. Multiple regression
analysis utilized to confirm the relationship and found that all variables, that is,
earnings (EPS), dividend coverage (DCR), financial structure (D/E ratio), total
deposits (TD), book value ratio (PBS) and firm size (TA) have positive and
significant association with the profitability.
Athanasoglou, Delis and Staikouras (2006) measured the selected determinants
effect on banks profitability in the South Eastern European (SEE) region from
1998 to 2002 period. The study found positively relationship of concentration and
53
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
inflation on the bank profitability, whereas banks profits are not significantly
affected by real GDP fluctuations. Atrill (2006) found numerous small scale
entities are dire at dealing with working capital requirements. Berger and
Bouwman (2013) found that mismanagement in working capital often caused by
the owner’s inability to manage it efficiently, considering it as one of the greatest
challenge that small and medium enterprises face.
Faridl (2007) investigated the relationship of financial structure and total size to
profitability partially as well as simultaneously from 2005 to 2007. The findings
show that a) simultaneously, all independent variables has significant and positive
association to the profitability, b) partially, only financial structure has the direct
relationship with the profitability measure. Wum, Hsiu-Ling, Chen, Chien-Hsun,
Shiu, Fang-Ying (2007) investigated the impact of bank’s age, bank’s size,
financial change, the level of monetization, non-interest ratio, extent of
capitalization level and GDP per capita on the profitability of 14 Chinese banks
from 1996-2004. The results showed that the higher the levels of financial change,
the better ROA for banks. The results exhibited a negative impact of per capita
GDP and a longer bank existence on the ROA. A study by García-Teruel and
Martinez-Solano (2007) underlined that organizations can generate returns by
decreasing their number of days of inventory receivable and by achieving the
optimal capital structure accordingly, affirmed to the finding of Deloof (2003).
Sufian & Habibullah (2009) in their study focused on the internal and external
factors influencing the profitability of banks in Thailand from 1999 to 2005. ROA
and ROE were used as dependent variables. The study concluded that size,
economic growth, and capitalization has positive impact on profitability whereas
non-interest income, GDP, credit risk and overhead costs have negative
relationship with profitability of banks. Mathuva (2009) also found negative
relationship between profitability and average collection accounts, and
additionally discovered negative net profit and working capital in Nairobi stock
exchange using fixed and pooled OLS estimation techniques. This is similar to the
earlier findings of Raheman and Nasr (2007) who also found negatively significant
relationship of firm’s profitability and working capital in Pakistan.
Gill, Biger, and Mathur (2010) determined working capital relationship with the
profitability of firms in New York stock exchange, USA. Their study discovered
positive significant association between the profitability and working capital.
However, Karaduman, Akbas, Ozsozgun, and Durer (2010) in Istanbul and Ding,
54
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
Guariglia, and Knight (2013) in Vietnam found highly negative significant
relationship of working capital and profitability. Michalski (2012) examined that
an increase in receivables accounts level of an organization also increments the
net working capital and the associated expenses of holding and overseeing
receivables, thus leading to a diminishing organization profit and net revenue.
Ostadi & Monsef (2014) focused on the factors influencing the profitability of
business banks in Iran. Dependent variable was profitability (ROE, ROA), and
bank deposits, bank size, bank capital, liquidity concerns, and keeping money
prerequisites were independent variables. Results showed that the impact of bank
size and bank concentration on profitability was statistically significant. Ijaz,
Akmal & Gillani (2015) investigated the influence of bank’s internal factors on the
profitability of Islamic banks in Pakistan during 2006 to 2013. ROA and ROE
were used as a proxy for dependent variable (profitability). By using panel analysis
technique, the estimated results showed that leverage ratio, operating efficiency,
asset management, and bank size had positive and significant relationship to the
profitability of Islamic banks.
To abridge, a review of the former writing on the relationship between working
capital management, financial structure and profitability recommends that there
are strong linkages among the profitability of banks and its internal and external
factors as identified by several research studies. However, results varied
significantly due to the environmental changes and data included in the analysis.
2.1
Hypothesis
H1: There is a negative relationship between working capital and profitability of
Islamic and conventional banks.
H2: There is a direct significant relationship between financial structure and
profitability of Islamic and conventional banks.
3. Methodology and Data
The population of this study is Islamic and conventional banks of Pakistan. The
sample is a balanced panel dataset of 5 Islamic banks covering a time period 2006
to 2014 and 15 conventional banks covering a time period 2008 to 2014,
consisting 45 observations for Islamic banks and 105 observations for
conventional banks respectively. Some of the conventional banks are excluded
from the sample due to missing relevant information. A total of 7 internal
55
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
variables and 2 external variables are used for the research study on annual basis.
An advantage of using panel data is that more observations on the explanatory
variables are available (Hsiao, 2007). This helps in overcoming the inherent multicollinearity which probably exists among the independent variables. The data on
internal variables collected from annual reports of selected banks, whereas data
on external variables collected from the World Bank (www.worldbank.org/).
ROA and ROE are the largely pertained ratios used to measure financial
performance or profitability (Naceur & Goaied, 2001; Sufian & Habibullah,
2009). The profitability of banks is measured from three dimensions, i.e. ROA,
NI and ROE. Internal explanatory variables include working capital, financial
structure, bank size and deposits, whereas external explanatory variables are GDP
and CPI taken for the study. The study analyzes the data through Generalize
Least Square (GLS) with the help of STATA software to test the relationship
between dependent and independent variables. Sufian & Habibullah (2009)
argued that to avoid heteroskedasticity and biasness in the data, one must use
control variables and GLS model to resolve such problems in the data set.
Table - 1: Definitions and Notations of the Variables
Variable
Symbol
Return on Assets
ROA
Operating Income / Total Assets
Return on Equity
ROE
Operating Income / Total Equity
Net Income
NI
Working Capital
WC
Financial
Structure
Banks Size
D/E
Total Deposits
TD
TA
Measure
Total Income – (Cost of Goods Sold +
Expenses + Taxes)
Current Assets – Current Liabilities
Proportion of funds provided by
corporate creditors
Log of total assets
Gross Domestic
Product
GDP
Total amount received by the bank in
form of current/saving accounts
Annual GPD
Consumer
Index
CPI
Annual CPI
Price
Reference
Bashir, 2003; Wum et al. 2007;
Sufian & Habibullah, 2009; Ostadi
& Monsef, 2014; Ijaz et al., 2015
Deloof, 2003; Bashir, 2003; Hadi,
2004; Al-Tamimi, 2005; Olson &
Zoubi, 2011
Uddin, 2009; Sufiyan & Habibullah,
2009
Raheman & Nasr, 2007; Danuletiu,
2010; Mohamad & Saad, 2010;
Valahzaghard & Taherinejhad,
2012;
Enqvist,
Graham,
&
Nikkinen, 2014; Farhadi et al., 2015
Harris, 2005; Singh and Sharma,
2006; Raheman & Nasr, 2007
Goddard, Molyneux & Wilson,
2004; Wum et al., 2007; Flamini,
Schumacher & McDonald, 2009
Ostadi & Monsef, 2014, Ijaz et al.,
2015
Wum et al., 2007; Kosmidou &
Zopunidis, 2008; Mehmet & Eda,
2009
Deloof, 2003; Gul, Irshad &
Zaman, 2011; Farhadi et al., 2015
56
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
The research model of the study is as follow:
Profit= β0+ β1 (WCit) + β2 (D/Eit) + Σ β3 (Xit) + €it
Where
i denotes banks,
t denotes number of years,
Prof represents profitability variables,
WC represent working capital,
DE represents the debt to equity ratio,
Xit represents the set of control variables
(banks size, total deposits, GDP, CPI),
€it represents the error term
Figure 1: Research Framework
Return on Equity
(ROE)
Working Capital
(WC)
Net Income
(NI)
Financial
Structure (D/E)
Return on Assets
(ROA)
Control Variables
Banks Profitability
Banks Size
Total Deposits
GDP
CPI
Internal / External Variables
4. Results and Discussion
4.1
Descriptive Statistics
Table 2 explains the descriptive statistics of all the dependent and independent
variables. The value of mean depicts the average of the given variables taken for
the study. Standard error is the average dispersion inherent in large number of
samples. The volatility in the data set is measured through the standard deviation.
A small value of standard deviation means that the data points lie close to the
mean value. To overcome the issue of normality in banks size, GDP and CPI, the
study takes logarithm of banks size (total assets), GDP and CPI after applying the
Test of Normality. Last two columns show the minimum and maximum values of
57
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
the variables taken for study. The significance level used for this study is 0.05 with
confidence level of 95%.
Table 2: Descriptive Statistics
Islamic Banks
Conventional Banks
Variable
NI
ROA
ROE
WC
D/E
TA
TD
logGDP
logCPI
4.2
Mean
Std.
Dev.
0.36
0.43
4.39
15.58
7.50
17.52
0.57
26.54
4.56
1.45 -2.19 4.56 15.24 1.72 11.40 19.75
1.27 -1.84 7.63 1.83
4.50 -25.2 9.12
8.34 -9.93 28.18 11.72 105.99 -28.1 40.53
1.23 12.20 18.46 16.33 1.80 12.21 20.70
5.16 0.09 17.77 11.20 12.25 0.04 66.78
1.13 14.80 19.89 18.96 1.59 15.52 23.12
0.25 0.00 1.29 0.96
1.09
0.00 6.24
1.73 25.54 29.78 25.62 0.06 25.54 25.74
0.29 4.08 4.95 4.68
0.20
4.34 4.95
Min
Max
Mean
Std.
Dev.
Min
Max
Multi-Collinearity Analysis
Table 3 shows the multi-collinearity test of all the variables used in the study. The
test indicates the absence of multi-collinearity problem among all the factors. This
means that all the factors taken in to study have no interdependency on each
other and free from the issue of correlation of explanatory variables. The results
show that the data can be utilized for the regression because the problems do not
exist among its variables. The rule of thumb of variance inflation factor (VIF) test
states that VIF value should be less than 10 (Gujarati, 2003). As all the values of
VIF are below 10 which mean we reject the null hypothesis and conclude that
there is no multi-collinearity among explanatory variables.
Table 3: Variance Inflation Factor Test
Islamic Banks
Conventional Banks
Variable
NI
ROA
ROE
WC
D/E
TA
TD
logGDP
logCPI
Tolerance
0.98
0.36
0.40
0.67
0.57
0.76
0.81
0.80
1.32
VIF
1.02
2.76
2.48
1.48
1.73
1.31
1.23
1.25
0.75
Tolerance
1.31
0.36
0.53
0.63
1.15
0.81
0.70
0.73
1.24
VIF
0.76
2.76
1.86
1.56
0.86
1.23
1.41
1.35
0.80
58
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
4.3
Panel Data Analysis
Panel data provides more accurate inference of model parameters (Kiviet, 1995),
controls impact of omitted variables (Heckman, Killingsworth and MaCurdy,
1981), generate more accurate predictions (Hsiao, 2003), and analyze nonstationary time series (Binder, Hsiao & Pesaran, 2005). After testing the
correlation test among variables, generalized least square (GLS) regression has
been applied to check the influence of independent variables on dependent
variable. The advantage of pooling is that more reliable estimates of the
parameters in the model can be obtained. Table 4 and Table 5 represent the GLS
regression analyses results for all the three models for Islamic and conventional
banks. The number of observations in each model is 45. The coefficient for each
variable represents the positive or negative impact on the respective dependent
variables, if variable is increased by 1 percent (or unit). Similarly, p-value indicates
whether the independent variables have significant impact on the profitability
(NI, ROA and ROE) at 1%, 5% and 10% significance level respectively.
4.3.1
Regression for Islamic Banks
Table 4 shows that there is a negative relationship of working capital, total
deposits, GDP and CPI with the NI. However, NI found to be positively
associated with financial structure (D/E ratio) and bank size. The findings also
shows that only bank size (Ali, Akhtar & Ahmed, 2011), total deposits (Chirwa,
2003) and CPI found to be statistically significant to NI. Moreover, working
capital has negative but significant relationship with the ROA and ROE, similar
to the earlier findings of Deloof (2003) and Raheman & Nasr (2007).
Table 4: GLS Regression for Islamic Banks
Variable
NI
ROA
ROE
WC
-0.01
-0.04***
-0.03***
D/E
0.22
0.00***
0.06***
TA
4.81***
0.12***
0.02***
TD
-6.44***
-0.08***
-0.25***
logGDP
-0.03
-0.00**
-0.01**
logCPI
-12.36***
-0.47***
-0.22***
Constant
-8.67
0.70***
0.25***
* 0.05 significance level ** 0.01 significance level *** 0.001 significance level
Similarly, financial structure and bank size has statistically positive relationship
with the ROA and ROE. These outcomes are similar to the work of Bae, Kang, &
Wang (2011), Ruan, Tian, & Ma (2011) and Saeedi & Mahmoodi (2011). Thus, it
59
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
indicates that large the size of banks, higher the investment of the bank, which
ultimately increases the return (profit) of the banks. Total deposits are negatively
significant with all profitability measures; illustrate that when deposits increases,
the profitability of the Islamic banks decreases. In addition, GDP and CPI also
show negatively significant (Sufian & Habibullah, 2009) relationship with the
profitability of Islamic banks.
4.3.2
Regression for Conventional Banks
Table 5 depicts the relationship between working capital, financial structure and
other control (internal/external) variables with the profitability measures of
conventional banks. The findings show that the variable of working capital has
positive relationship with NI but it’s not statistically significant. Moreover,
working capital found to be negative and statistically significant with the
profitability indicators of ROA and ROE, similar with the findings of Falope &
Ajilore (2009). Financial structure (D/E) has negative significant relationship with
all three measures of profitability, supported by the earlier research of Cheng
(2009) but contradicted to the findings of Wum, Hsiu-Ling, Chen, Chien-Hsun,
Shiu, Fang-Ying (2007). This indicates that an increase in banks financial
structure, results in decrease of profitability in conventional banks. It means
companies with higher level of debt, usually perceived to be doing risky
investments, possibly affecting wealth transfer from debt holders to share holders.
Similarly, the study found positive relationship of bank size (total assets) with all
profitability measures. In addition, total deposits and CPI show positive relation
with the three models, however only statistically significant with NI. GDP impact
statistically significantly and negatively on NI, but found to be positive
insignificant association with ROA and ROE. This is also supported by
Athanasoglou, Delis and Staikouras (2006).
Table 5: GLS Regression for Conventional Banks
Variable
NI
ROA
ROE
WC
0.00
-0.16***
-0.01
D/E
-0.01**
-0.04***
-0.00*
TA
1.19***
0.25*
0.03***
TD
0.69***
0.34
0.00
logGDP
-1.65**
1.11
0.05
logCPI
0.25
1.27
0.05
Constant
32.63**
-23.29
0.97
* 0.05 significance level ** 0.01 significance level *** 0.001 significance level
60
Islamic Banking and Finance Review, 3 (1), 50-67, 1437H/2016
5. Conclusion
Financial officials of corporations regularly distinguish that working capital
management and financial structure is very important of the banking profitability.
This study was an attempt to understand that to what extent working capital and
capital structure affect banking profitability of Islamic and Conventional banks in
Pakistan. The study found that working capital has negative and statistically
significant relationship with the profitability in both Islamic and conventional
banks, in line with the findings of Falope & Ajilore (2009) and Raheman & Nasr
(2007). On the contrary, debt to equity ratio is negatively related with profitability
measures of conventional banks, supported the argument of Mesquita & Lara
(2003), who indicates that long-term debts are generally more costly and
henceforth bring about low profitability. However, debt equity ratio impact
positively and significantly on profitability of Islamic banks, supported by earlier
finding of Grossman & Hart (1986), who contend that larger amounts of debt in
the association's capital structure will be straightforwardly connected with higher
levels of profitability. These outcomes have potential approach suggestions for
the regulators of Islamic and conventional banks and other financial organizations
that might need to add an indigenous financial framework. Further research can
be extended to explore the above findings and to include some other factors such
as doubtful loans, reserves ratios, capital adequacy ratio, inflation, exchange rate,
etc.
61
Islamic Banking and Finance Review, 3 (1), 71, 1437H/2016
References
Ahmad, Z., Abdullah, N. M. H., & Roslan, S. (2012). Capital structure effect on
firms profitbility: Focusing on consumers and industrials sectors on
Malaysian firms. International review of business research papers, 8(5), 137-155.
Akhtar, M. F., Ali, K., & Sadaqat, S. (2011). Liquidity risk management: a
comparative study between conventional and Islamic banks of Pakistan.
Interdisciplinary journal of research in business, 1(1), 35-44.
Ali, K., Akhtar, M. F., & Ahmed, H. Z. (2011). Bank-Specific and
Macroeconomic Indicators of Profitability-Empirical Evidence from the
Commercial Banks of Pakistan. International Journal of Business and Social
Science, 2(6), 235-242.
Al-Tamimi, H. A. H. (2005). Factors influencing individual investor behavior: an
empirical study of the UAE financial markets. The Business Review, 5(2),
225-233.
Andres, C. (2008). Large shareholders and firm profitbility—An empirical
examination of founding-family ownership. Journal of Corporate Finance,
14(4), 431-445.
Athanasoglou, P. P., Delis, M. D., & Staikouras, C. K. (2006). Determinants of bank
profitability in the South Eastern European region. Bnk of Greece.
Atrill P (2006). Financial management for decision makers (4th Ed).Prentice Hall.
Bae, K.-H., Kang, J.-K., & Wang, J. (2011). Employee treatment and firm
leverage: A test of the stakeholder theory of capital structure. Journal of
Financial Economics, 100(1), 130-153.
Bagchi, B., & Khamrui, B. (2012). Relationship between Working Capital
Management and Profitability, A study of Selected FMGG Companies in
India [On–Line]. Business and Economic Journal Available: http://astonjournals.
com/manuscripts/Vol2012/BEJ-60_Vol2012. pdf, 13-16.
Bashir, A. H. M. (2003). Determinants of profitability in Islamic banks: Some
evidence from the Middle East. Islamic economic studies, 11(1), 31-57.
Berger, A. N., & Bouwman, C. H. (2013). How does capital affect bank
profitbility during financial crises? Journal of Financial Economics, 109(1),
146-176.
Binder, M., Hsiao, C., & Pesaran, M. H. (2005). Estimation and inference in short
panel vector autoregressions with unit roots and cointegration. Econometric
Theory, 21(04), 795-837.
62
Islamic Banking and Finance Review, 3 (1), 71, 1437H/2016
Cheng, M.-T. (2009). Relative effects of debt and equity on corporate operating
profitbility: A quantile regression study. International Journal of Management,
26(1), 142.
Chirwa, E.W. (2003), ―Determinants of commercial banks’ profitability in Malawi:
A cointegration approach‖, Applied Financial Economics, Vol. ( 13),p. 565-77
Danuletiu, A. E. (2010). Working capital management and profitability: a case of
Alba county companies. Annales Universitatis Apulensis: Series Oeconomica,
12(1), 364.
Deloof, M. (2003). Does working capital management affect profitability of
Belgian firms? Journal of Business Finance & Accounting, 30(3‐4), 573-588.
Ding, S., Guariglia, A., & Knight, J. (2013). Investment and financing constraints
in China: does working capital management make a difference? Journal of
Banking & Finance, 37(5), 1490-1507.
Enqvist, J., Graham, M., & Nikkinen, J. (2014). The impact of working capital
management on firm profitability in different business cycles: Evidence
from Finland. Research in International Business and Finance, 32, 36-49.
Falope OI, Ajilore OT, (2009). Working capital management and corporate
profitability: evidence from panel data analysis of selected quoted
companies in Nigeria. Research Journal of Business Management, 3: 7384.
Farhadi Bezminabadi, F., Salehnezhad, S. H., & FaghaniMakrani, K. (2015).
Studying the Effect of Working Capital Management on the Profitability
of Companies Listed In Tehran Stock Exchange. Academic Journal of
Accounting and Economic Researches ISSN 2333-0783, 4(3).
Faridl, Aang Z. (2007). Analisis Pengaruh Earning Per Share, Price Earning Ratio,
dan Return On Equity terhadap Harga Saham, (Studi Pada Perusahaan
Farmasi Yang Terdaftar di BEJ Periode 2002-2005). Skripsi. Universitas
Brawijaya, Malang. Haryanto, dan Toto Sugiharto. 2003. Pengaruh Rasio
Profitabilitas Terhadap Harga Saham Pada Perusahaan Industri Di Bursa
Efek Jakarta. Jurnal Ekonomi dan Bisnis, No. 3, Jilid 8, Tahun 2003; 141-154
Filbeck, G., & Krueger, T. M. (2005). An analysis of working capital management
results across industries. American Journal of Business, 20(2), 11-20.
Flamini, V., Schumacher, L., & McDonald, C. A. (2009). The determinants of
commercial bank profitability in Sub-Saharan Africa. International Monetary
Fund.
Gill, A., Biger, N., & Mathur, N. (2010). The relationship between working capital
management and profitability: Evidence from the United States. Business
and Economics Journal, 10(1), 1-9.
63
Islamic Banking and Finance Review, 3 (1), 71, 1437H/2016
Goddard, J., Molyneux, P., & Wilson, J. O. (2004). The profitability of European
banks: a cross‐sectional and dynamic panel analysis. The Manchester School,
72(3), 363-381.
Gujarati, D., & Porter, D. (2003). Multicollinearity: What happens if the
regressors are correlated. Basic econometrics, 363.
Gul, S., Khan, M. B., Rehman, S. U., Kahn, M., Khan, M., & Khan, W. (2013).
Working capital management and profitbility of SME sector. European
Journal of Business and management, 5(1), 60-68.
Hadi, M. M. (2004). The importance of accounting information to the investors in banking
sector: Kuwaiti evidence. Working paper, College of Business Administration
Kuwait University.
Haider, M., Rizvi, M., Malik, A., Azam, M., & Rabbani, M. U. (2011). Acute and
chronic Chlamydia pneumoniae infection and inflammatory markers in
coronary artery disease patients. The Journal of Infection in Developing
Countries, 5(08), 580-586.
Harris, A. (2005). Working capital management: difficult, but rewarding. Financial
Executive, 21(4), 52-54.
Heckman, J. J., Killingsworth, M., & MaCurdy, T. (1981). Empirical evidence on
static labour supply models: A survey of recent developments. The
economics of the labour market, 75-122.
Hsiao, C. (2003). Analysis of panel data (Vol. 34). Econometric Society Monographs.
Hsiao, C. (2007). Panel data analysis—advantages and challenges. Test, 16(1), 1-22.
Ijaz, F., Akmal, A., & Gillani, S. H. B. (2015). The Determinants of the Pakistan
Islamic Banking Industry Profitability: Panel Evidence. Islamic Banking and Finance
Review, 1(02).
Juan García-Teruel, P., & Martinez-Solano, P. (2007). Effects of working capital
management on SME profitability. International Journal of managerial finance,
3(2), 164-177.
Karaduman, H. A., Akbas, H. E., Ozsozgun, A., & Durer, S. (2010). Effects of
working capital management on profitability: The case for selected
companies in the Istanbul stock exchange (2005).
Kiviet, J. F. (1995). On bias, inconsistency, and efficiency of various estimators in
dynamic panel data models. Journal of econometrics, 68(1), 53-78.
Lamberson, M. (1995). Changes in working capital of small firms in relation to
changes in economic activity. American Journal of Business, 10(2), 45-50.
Mathuva, D. (2009). The influence of working capital management components
on corporate profitability: a survey on Kenyan listed firms. Research Journal
of Business Management, 3(1), 1-11.
64
Islamic Banking and Finance Review, 3 (1), 71, 1437H/2016
Mehmet, D., & Eda, O. (2009). Relationship between efficiency level of working
capital management and return on total assets in ise (istanbul stock
exchange). International journal of Business and Management, 4(10), 109.
Mesquita, J., & Lara, J. E. (2003). Capital structure and profitability: the Brazilian case.
Paper presented at the Academy of Business and Administration Sciences
Conference.
Michalski, G. (2012). Efficiency of accounts receivable management in Polish
institutions. European Financial Systems.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance
and the theory of investment. The American economic review, 48(3), 261-297.
Mohamad, N. E. A. B., & Saad, N. B. M. (2010). Working capital management:
The effect of market valuation and profitability in Malaysia. International
journal of Business and Management, 5(11), 140.
Mukhopadhyay, D. (2004). Working capital management in heavy engineering
firms-A case study. Management Accountant-Calcutta-, 39, 317-323.
Naceur, S.B. and Goaied M. (2001), ―The determinants of the Tunisisian deposit
banks’ performance‖, Journal of Applied Financial Economoics, Vol, 11, p.317319. ORISIS database, University of Sharjah Library.
Nazir, M. S., & Afza, T. (2009). Impact of aggressive working capital management
policy on firms' profitability. IUP Journal of Applied Finance, 15(8), 19.
Nyamao, N. R., Patrick, O., Martin, L., Odondo, A. J., & Simeyo, O. (2012).
Effect of working capital management practices on financial profitbility: A
study of small scale enterprises in Kisii South District, Kenya. African
Journal of Business Management, 6(18), 5807.
Olson, D., & Zoubi, T. A. (2011). Efficiency and bank profitability in MENA
countries. Emerging Markets Review, 12(2), 94-110.
Ostadi, H., & Monsef, N. (2014). Assessing the Impact of Bank Concentration
and Liquidity of Refah Bank Branches on Profitability during the
Period1383-190. International Journal of Human Resource Studies, 4(1), Pages248.
Raheman, A., & Nasr, M. (2007). Working capital management and profitability–
case of Pakistani firms. International review of business research papers, 3(1), 279300.
Raza, M. Y., Bashir, M., Latif, K., Shah, T. S., & Ahmed, M. (2015). Impact of
working capital management on profitability: Evidence from Pakistan oil
sector. International Journal of Accounting and Financial Reporting, 5(1), 286299.
65
Islamic Banking and Finance Review, 3 (1), 71, 1437H/2016
Ricci, C., & Vito, N. (2000). International working capital practices in the UK.
European Financial Management, 6(1), 69-84.
Ruan, W., Tian, G., & Ma, S. (2011). Managerial ownership, capital structure and
firm value: Evidence from China's civilian-run firms. Australasian
Accounting Business & Finance Journal, 5(3), 73.
Saeedi, A., & Mahmoodi, I. (2011). Capital structure and firm profitbility:
Evidence from Iranian companies. International Research Journal of Finance
and Economics, 70, 20-29.
Shubita, M. F., & Alsawalhah, J. M. (2012). The relationship between capital
structure and profitability. International Journal of Business and Social Science,
3(16).
Singh, S., & Sharma, G. D. (2006). Inter-linkages between Stock exchanges: A
study of BRIC Nations. International Journal of Marketing, Financial Services &
Management Research, 1(3), 1-17.
Sufian, F., & Habibullah, M. S. (2009). Bank specific and macroeconomic
determinants of bank profitability: Empirical evidence from the China
banking sector. Frontiers of Economics in China, 4(2), 274-291.
Uddin, M. B. (2009). ―Determinants of market price of stock: A study on Bank
Leasing and Insurance companies of Bangladesh‖. Journal of Modern
Accounting and Auditing, 5(7), 1-6.
Valahzaghard, M., & Taherinejhad, A. (2012). The impact of working capital and
financial structure on profitability of islamic banking industry. Management
Science Letters, 2(7), 2625-2630.
Wum, Hsiu-Ling, Chen, Chien-Hsun, Shiu, Fang-Ying (2007), ―The impact of
financial development and bank characteristics on the operational
performance of commercial banks in the Chinese transitional economy‖,
Journal of Economic Studies, Vol. 34(5), p. 401-414.
66
Islamic Banking and Finance Review, 3 (1), 71, 1437H/2016
Appendix
List of Conventional Banks Taken for Study
Sr #
Conventional Banks
1
2
Allied Bank limited
Bank Al-Habib Limited
3
Faysal Bank Limited
4
5
6
7
8
9
10
11
12
13
14
15
Habib Metropolitan Bank
HBL Bank
JS Bank
KASB Bank
Khyber Bank
MCB Bank
National Bank of Pakistan
Samba Bank
Standard Chartered Bank
Summit Bank
Askari bank
Bank Alfalah
List of Conventional Banks Taken for Study
Sr #
1
2
3
4
5
Islamic Banks
Meezan Bank Limited
Al Baraka Bank
Bank Islami (Pakistan) Limited
Burj Bank Limited
Dubai Islamic Bank
67