Investment Management and Financial Innovations, Volume 14, Issue 1, 2017 80 Emmanuel Kojo Oseifuah (South Africa), Agyapong Gyekye (South Africa) Working capital management and shareholders’ wealth creation: evidence from non-financial firms listed on the Johannesburg Stock Exchange Abstract Working capital plays a vital role in shareholders’ wealth creation, yet there is a dearth of empirical studies on the relationship between working capital management and firm value in the South African economic environment. This study attempts to fill this gap by using Richards and Laughlin’s (1980) Cash Conversion Cycle theory to investigate the impact of working capital management efficiency and its separate components on firm value of South African firms listed on the Johannesburg Stock Exchange (JSE). Panel data regression methodology was used to analyze accounting data obtained from I-Net Bridge/BFA McGregor for 75 firms for the 10 year period, 2003 to 2012, to determine the nexus between WCM and profitability (proxied by return on assets). The key findings of the study are as follows: 1) there exists a significant positive relationship between firm value and both inventory conversion period and receiv- ables conversion period; 2) the relationship between the cash conversion cycle and firm value is positive but insignifi- cant; 3) there is a significant positive relationship between accounts payable deferral period (PDP) and profitability; 4) firm size and firm value are significantly positively related, and 5) there is a significant negative relationship between leverage and firm value. Keywords: firm value, Johannesburg Stock Exchange, market capitalization, shareholder wealth creation, working capital management. JEL Classification: M41. Introduction  According to Jensen (2001), the origins of the ideas shaping shareholder wealth maximization theory are more than 200 years old, with roots in Adam Smith’s (1776) The Wealth of Nations. In general, shareholder theory encompasses the idea that the main purpose of business lies in generating profits and increasing shareholder wealth. Indeed, a review of corporate annual financial reports reveals that the SWM tenet is a fundamental principle, as well as a universal corporate objective. For example, Roberto Goizueta, the former CEO of the Coca-Cola Com- pany (cited in Van Horne and Wachowicz, 2008, p. 1), points out that ‘increasing shareholder value over time is the bottom line of every move we make’. McDonald (2006) puts it this way: ‘... we [the Board of Directors] are united in our goal to ensure McDonald strives to enhance shareholder value’. Philips (2006) declared that ‘the desire to increase shareholder value is what drives our actions’. There is, therefore, no disputing that the shareholder wealth maximization principle is the driving force behind corporate finance. The implications of effi- cient working capital management for value creation  Emmanuel Kojo Oseifuah, Agyapong Gyekye, 2017. Emmanuel Kojo Oseifuah, Associate Professor, Department of Accoun- tancy, University of Venda, South Africa. Agyapong Gyekye, Emeritus Professor, Department of Economics, University of Venda, South Africa. This is an Open Access article, distributed under the terms of the Crea- tive Commons Attribution-NonCommercial 4.0 International license, which permits re-use, distribution, and reproduction, provided the materials aren’t used for commercial purposes and the original work is properly cited. for shareholders has been the focus of several em- pirical studies in developed countries. Most re- searchers have argued that efficient working capital management is very imperative in the realization of the shareholder wealth maximization objective, because it influences a firm’s risk, profitability and ultimately shareholders’ wealth (Smith, 1980; Deloof, 2003; Ganesan, 2007; Watson and Head, 2007; Kieschnick et al., 2013; Deutsche Bank, 2014; Boyce, 2014; Aktas, Croci, and Petmezas, 2015). Dong and Su (2010) echo the importance of work- ing capital management and its consequence on shareholders wealth creation by emphasizing that working capital management is a continuous func- tion which is linked to the survival of firms and if WCM is not given due consideration, the firm can- not survive for a longer period. In another study, Watson and Head (2007) asserted that working capital management is a vital factor in a firm’s long-term success and without the ‘oil’ of working capital, the ‘engine’ of fixed assets will not function. Consistent with the above studies is Ernst and Young’s (2009) working capital study, which reported that the 2000 leading companies in the USA and Europe have ample opportunities to re- lease liquidity of about US$ 1 trillion from working capital during the 2008/2009 financial crisis. This finding is in agreement with Lai’s (2012) study, which identified working capital as a catalyst for the resuscitation of most businesses worldwide after easing of the global financial crisis. In line with the above studies is REL’s (2011) working capital sur- vey, which reported that most large companies in Europe increased their revenue by 14.9% in 2010