Page 60 - FREN-C2021 PROCEEDINGS

that take place in the firms while the external factors depend on the ‘macroeconomics factors’
(Zariyawati et al., 2010). Numerous studies have been performed to determine the ‘Determinants
factors of WCM’. Nevertheless, previous studies use a mixed variable in explaining the determinants
of WCM. A study from (Mohammad & Elias, 2013) using few variables which are firm size, growth
opportunity, economic growth and inflation result in a significant impact on WCM. Another previous
empirical study by (Zariyawati et al., 2010) demonstrates that the cash conversion cycle has a
significant level of coefficient with few variables which is, firm size, debt ratios, firm’ growth
opportunity, the board size, independent director, economic growth and inflation rate. (Mansoori &
Muhammad, 2012) attempted to determine key factors involving WCM in Singapore’s firm. The
study found WCM is negatively correlated with the ratio of operating cash flow to sales. Meanwhile,
the cash conversion cycle is positively correlated with the debt ratio.
A considerable amount of literature has been published on the determinants of WCM in different
markets. However, there has been relatively little literature published on the determinants of WCM for
consumer-based product and services sectors in Malaysia. So, this study is conducted by offering
empirical evidence for the result determinants of WCM for shariah compliance firms under consumer
product sector evidence from Malaysia. These studies will examine the relationship between the
factors and the determinants of WCM in Malaysia. The data panel consists of 42 shariah compliance
firms under consumer-based product and services companies in Malaysia throughout 2015-2019. The
cash conversion cycle (CCC) was selected in this study as the proxy in the determinants of WCM.
Few independent variables have been chosen in the study after being determined carefully by
evaluating another research study. The independent variable used for this study is the average
collection period (ACP), the current ratio (CR), the quick ratio (QR), and sales growth (SG).

Methods
Target Population and Data Collection Procedure
The target population for the research was all Shariah Compliant firms listed under the consumer
products sector on Bursa Malaysia. Financial data of the selected samples are extracted from the
published annual reports obtained from Bursa Malaysia’s website and online databases such as
DataStream and Eikon. For each of the review periods, the information on the sample’s financial data
is extracted as of each financial year-end. Subsequently, the financial ratios of all the variables
(dependent and independent variables) are computed using the identified formulas.

Model Specification
This study aims to investigate the factors affecting the working capital of shariah-compliant
forms listed under the consumer products sector This paper specifies and estimates the
following baseline regression model for all firms.

CCC = β + β ACP + β CR + β QR + β GROWTH + ε (1)
it
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4
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2
1
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0
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3

The dependent variable for this paper is CCC. It refers to the cash conversion cycle, the proxy used to
measure the working capital of the firm. The first independent variable is ACP, which refers to the
Average collection Period (360/Account Receivable Turnover). ACP shows the average number of
days to collect the invoiced amount from customers and it is used to determine the company’s
effectiveness on credit policies and effort of collections. CR is the current ratio (Current Asset –
Current Liability). it shows the ability of a company to pay its short-term obligation within one year. It
shows how the companies maximize their current asset to satisfy their current debt and other liability.
QR refers to Quick Ratio (Current Asset – Inventory) / Current Liability). QR measures the capacity
of a company to pay its current liability without selling its inventory or getting any additional funds.
When the higher the ratio, it is good for financial and liquidity health. GROWTH refers to the sales
growth of the company. It measures the ability of the company to increase its revenue within a fixed
period.

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