Untangling the Puzzle of Cash Holding Net Working Capital & Financial Performance: A Case of Pakistan Stock Market

Abstract

Purpose:This study examines the impact of liquidity, cash flow operations, and cash holding on a firm’s profitability, with a moderating role of net working capital.The trade-off and pecking order theories are studied to formulate hypotheses to test the explanatory variables that affect a firm’s profitability of companies in Pakistan Stock Market. Methodology:The quantitative approach was used in this study and the panel data of selected companies were extracted from the Osiris database from 2009 to 2018. Findings:The results show a significant positive connection between liquidity, cash flow operations, cash holdings, net working capital and ROA. As a result, the study’s model was accepted, explaining that liquidity, cash holdings, and cash flow operations positively and significantly affect the ROA. Implications/Originality/Value:Limited evidence is available regarding the impact of net working capital on the affiliation between cash holding and profitability within the Pakistan Stock Market. The present study endeavors to address the above gap by investigating the moderating impact of net working capital on the association between selected factors of cash holding and profitability.