IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN:2319-7668, PP 93-100 www.iosrjournals.org New dimensions in Business and Management Research 93 | Page Department of Management Sciences, The Islamia University of Bahawalpur, Pakistan Impact of Working Capital Management on firms’ performance: Evidence from Chemical sector listed firms in KSE-100 index 1 Adeel Mumtaz, 2 Muhammad Rehan, 3 Muhammad Rizwan, 4 Farhan Murtaza, 5 Atif Jahanger, 6 Hina Almas khan 1,2,4,5,6 MS Scholar, Department of Management Sciences, The Islamia University of Bahawalpur, Pakistan 3 Lecturer, Department of Management Sciences, The Islamia University of Bahawalpur, Pakistan Abstract: The main objective of this paper is to determine the impact of working capital ma nagement on firm’s performance in progressing market such as Karachi stock exchange. In this paper we utilized different variables for the analysis of working capital management and firm performance in KSE for a sample of 22 firms of chemical sector for the period of 6 years from 2005-2010. The variables that were used in this study for the measurement of working capital management are number of days receivables, number of days inventory and the Size, Leverage, Inventories, Equity, Sales, and GDP are the control variables. The dependent variable that is used in this study for the measurement of the firm performance is Return on Asset. The size of firm is positively affected by the firm profitability. The firms whose profits are higher, these firms are not interested in managing working capital and firm performance. The result from this study shows that there is negative relationship between the working capital and firm performance. The relationship between the size and profitability is positive. If the size of the firm is increased or decreased then the profitability increased or decreased respectively. Moreover, there are negative relationship between the profitability and the debt utilized by firms that support to pecking order theory. Keywords: Working Capital Management, Equity, GDP, Chemical Sector, KSE-100 I. Introduction The present financial problems and decline that rapidity spread out from 2008 have brought very much attention to savings that companies made in temporary assets and capital utilized in the period of return into one year to signify the main part of things on a company’s financial position. It marked the significance of temporary working capital management (WCM) of companies in worldwide and urged researcher’s focus. Practitioners and researchers of same type supposed that perfect working capital management is necessary for companies among the successful financial period (Lo, 2005) and can be arranged well to develop the competition situation, profitability and others emphasize on progressing working capital management logically significant for the companies to survive from the impact of financial issues (Reason, 2008). WCM is probably high proportion of total firm’s resources. The top-level management underlining the high usage of short term resources and sources but because of the idea that there is no high standard results and observation about WCM’s effect on firm’s performance (Ricci and Divito, 1998; Garcia- Teruel and Martinez Sonano, 2007; Hill et al., 2010). As we use more efficient working capital or manage it more effectively, our performance increase and risk of bankruptcy also decreases. By increasing firm’s performance the need of debt must be reduced or minimize. The main feature of WCM is cash conversion cycle (CCC) (Deloof, 2003). CCC defines as the time between selling the product on credit and return of that product’s payment. If the CCC increases that means our payment is more delay. Due to this, our capital is more in working capital. The results of greater time period of CCC is very harmful for the organization because as greater time period of CCC the interest expenditures increase, the risk of default increases and the profitability decreases. Therefore, as CCC low, the management is more efficient and the benefit of low CCC is increasing the firm’s liquidity plus profitability. Liquidity and the stability both are demanding options as to perform a firm every day process. The requirement of liquidity is to make sure that the firms are capable to meet their temporary responsibilities and constant stream can be definite to a gainful project. The significance of cash as a sign of ongoing economic wellbeing should not be amazing in the observation of its vital position in business. It is a requirement that the business should be run together perfectly or profitably. Specified that stress of lesser credit limits and due to increased interest rates a quick reduction in requirements that occurs earnings on firm’s goods and services. It is lead to a vertical increase in stocks of capital and fixed up to these stocks. Therefore, the average period, many firms change their attention from increment in internal success and managing cash. The difference in asset liability might be happen in which firms can enlarge the profitability in the short period but in a danger of its