The moderating impact of economic policy uncertainty on the relationship between investment in working capital and profitability

Abstract

Purpose – Investment in working capital and firm profitability with economic policy uncertainty moderating effects has paid less attention in the existing literature. Therefore, this study examines the moderating impact of economic policy uncertainty on the relationship between Investment in working capital and firm profitability. Research methodology – This study uses secondary data of 38 Pakistani chemical companies over the period of 2014- 2019 using dynamic panel data methodology. Findings – The dynamic panel analysis indicates that economic policy uncertainty moderates the relationship of investment in working capital and firm profitability significantly and positively. Overall, the study findings indicate that working capital management investment significantly affect accounting base performance of Pakistani chemical and pharmaceutical companies. Research limitations – In this research, the researcher has collected data only from the non-financial sector. The financial industry can be used to carry the same study to get different results. Practical implications – This study will help practitioners while making an investment decision in working capital management for firms because the results of this study contribute significantly to the firm’s profitability. Originality/Value – This research contributes favourable to a country’s prospective investors at large and in the business’s internal environment to manage the short-term liquidity issues during economic policy fluctuations.