Testing the relationship between working capital management, profitability and operational efficiency using Granger causality
An applied study of a sample of companies in the services and industry sectors listed in the Iraqi Stock Exchange

Message submitted to The Council of the College of Administration and Economics at the University of Karbala

It is part of the requirements for obtaining a Master of Science degree in Banking and Finance

Submitted by the student

Hali Hamdi Abdul Hassan Al-Khafaji

Supervised by

M.D. Zainab Makki Al-Bina

Abstract

This study aims to identify the causal relationship between working capital management, profitability and operational efficiency, and to know the reality of working capital management in some service and industrial companies, and to come up with results and recommendations that help financial management in it to realize the nature of the relationship between the components of working capital management and both profitability and efficiency. Operational, and to measure and analyze the causal relationship (type and direction of the relationship) between working capital management, profitability and operational efficiency in service and industrial companies, the study sample.

       The population of this study was represented by the service and industrial companies listed in the Iraqi Securities Commission, while the study sample was represented by four companies listed for each sector. These sectors were chosen for their great importance and because they provide the appropriate environment for measuring working capital, profitability and operational efficiency and studying the relationship between them and whether this relationship is causal or not.

As for the duration of the study, it was eleven years for the period (2008-2019), according to the annual reports available for the study sample companies.

         The analytical method was relied upon because it was more appropriate to the nature and field of the study, and a number of the program was used to analyze the causal relationship between the variables and test the hypotheses through the (Granger) test, using the Excel program and the ready-made statistical program (Eviews).

     The study reached several conclusions, the most important of which is the absence of a causal relationship between working capital management (the independent variable) and profitability (the dependent variable) and between working capital management (the independent variable) and operational efficiency (the dependent variable), and in light of these conclusions, several conclusions were reached. Recommendations, the most important of which are the necessity of the study sample companies’ interest in managing working capital, profitability and operational efficiency to ensure the achievement of the company’s main objectives (profitability, liquidity, and safety).