IMPACT OF WORKING CAPITAL MANAGEMENT ON MARKET RISK OF FIRMS: EVIDENCE FROM THE CEMENT SECTOR OF PAKISTAN

Abstract

In this research, the degree of correlation between working capital management (WCM) and market risk in the cement sector in Pakistan, one of the most crucial industries to the national infrastructure and economic growth, is examined. In identifying a research gap in the role of WCM to market risk, especially in emerging economies, the study will attempt to empirically determine the consequences of net trade cycle, liquidity ratios, leverage and firm size to stock returns volatility. The analysis was performed to create a panel least squares estimation of 10 listed companies in the Pakistan Stock Exchange (20202024). It is observed that market risk is significantly reduced by efficient working capital practices, especially short net trade cycles. The size of a firm and the stability of macroeconomics, through GDP, are negatively related to the market risk, implying that large companies and stable economies are less exposed to financial risk. On the other hand, inventories' holding periods are related to more market risk if they are higher. Nonetheless, neither liquidity nor leverage indicators had any statistically significant effect. These findings suggest that companies may reduce the impacts of market turbulence by improving their financial activities, especially in the management of inventories and cash cycles. The recommended practice for financial managers is to have strong WCM strategies and correlate them with the macroeconomic trend. The best practice policymakers can do in relation to WCM efficiency includes encouraging industry benchmarks that would improve financial stability and investor confidence in the sector. The research adds empirical data to risk-informed financial planning in underdeveloped economies.