Impact of working capital on the market value and …2 - Working capital needs to the importance of special management of commercial banks to speed the movement and its importance

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2013 Institute of Interdisciplinary Business Research 197

DECEMBER 2013

VOL 5, NO 8

Impact of working capital on the market value and profitability of

Jordanian Commercial Banks

( 2012-2000)

Dr. Ghazi Al majeed Alrguibat

Department of Banking and Finance - Faculty of Business and Finance Management / Al al-

Bayt University

Mishaan Salem Aldvery

Researcher

Abstract

This study aims to examine the impact of working capital and its components on the

profitability of Jordanian commercial banks and their market value, also formulated the

problem of the study to answer the questions "Is there an effect of working capital on the

profitability of commercial banks of Jordan and its market value?, And whether this different

impact depending on the components of working capital? The researcher reached in this study

in the basic premise of the first to the existence of the effect statistically significant for all

components of working capital combined on the profitability of commercial banks, at the

same time the study found an effect statistically significant for both monetary and portfolio of

commercial paper discounted, while not there is the effect of portfolio securities on the

profitability , to reach this goal research is divided into two parts, first the theoretical

framework has been a review of the concepts of capital different , its importance ,

management of sources of funding in addition to its management of its components, while

addressing the second part of this study, the analytical test hypotheses of the study, using

analysis of simple and multiple regression depending on the program Statistical Package E-

views.Did not show statistical results of the hypothesis of the second and there is no effect

statistically significant for working capital a society or its components individually on the

market value of the Jordanian commercial banks .

. Key words : Working capital , Market value, profitability

Introduction Commercial banks management faces many financial decisions to solve the sources of

liquidity , the correlation between them stems from the importance of both the existence of

any institution and continuation ,so liquidity necessary to avoid the risk of bankruptcy also

profitability is essential for growth , continuity and survival . There is discrepancy between

these two elements, such as discrepancy in the Commercial Bank which appears in the form

of opposes that explained between the interests of the two groups, which provided funding to

the bank, so the shareholders and depositors look forward to high profitability on their

investments, and they inclined to a little sacrifice in liquidity in order to improve their

profitability, also looking to the safety, possibility of recovering their money when they need

it without difficulty, they inevitably tend to more liquidity, the difficult task entrusted to the

bank's management is balancing liquidity and profitability, through managing and analysis of

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working capital cycle in the commercial bank with analyzing cost of funds directed to finance

working capital (financing structure), with taking in their considerations the financial leverage

to achieve greater return on the invested money, but increasing reliance on borrowed money ,

without that there will be efficient in using displays bank risk which forcing them to raise the

rate of return, and increases cost of borrowing , financing risks and the researcher examined

the impact of working capital on market value and profitability of Jordanian commercial

banks through the study of the impact of the components of working capital both separately

and the total ingredients together, so that the researcher conducting this study (Cross -

Sectional Study) on the financial statements of commercial banks. The study sample for the

period (2000 - 2011).

Importance of the study: Management of working capital include number of features that

make it a great importance for the following reasons:

1 - Working capital considered an a great element for commercial banks; accounting for

current assets (assets Cash and cash equivalents) is approximately (58%), of the assets in

Jordanian commercial banks at the end of 2012, while formed short-term liabilities of about

(76% ), the size of the liabilities college in the same year, despite the fact that commercial

banks can reduce their investments in fixed assets by lease, but they can not avoid investing in

working capital, due to limited sources of long-term financing available to them, which forced

them to rely heavily on short-term sources, (deposits), which amounted in 2012 about 22504

million Jordanian dinars a rate of approximately (65%) of the total volume of liabilities, and

both of which increases the importance of working capital management for such banks.

2 - Working capital needs to the importance of special management of commercial banks to

speed the movement and its importance in achieving profitability Commercial Bank, where

the percentage of liquidity data consolidated balance sheet of commercial banks of Jordan

(159.1%) in 2011, while the return on assets for the same year 2011 ROA (1.1%), and return

on equity ROE (8.8%), while the percentage of coverage Coverage R. (52.0%), and the

proportion of Leverage Leverage R. (13.0%).

3 - As an importance of this study the dependence on data of Jordanian commercial banks,

which is the size of circulation about (15%) for the volume of shares traded in Amman Stock

Exchange in 2011 as well as the size of the assets exceeds the amount of 37.6864 billion

Jordanian dinars until the end of the same year While the market value of the banking sector

until the end of February of the year 2012 approximately 8,303,137 million Jordanian dinars.

Objectives of the study:

Researcher seeks through this study to achieve the following objectives:

First: to measure the impact of working capital in commercial banks to bank profitability and

market value.

Second: identify the components of working capital in the Jordanian commercial banks and

assessing the impact of these components on the profitability of commercial banks.

Third: determine the relative importance of the impact of these factors and how is it different

in effect on the profitability of banks and their market value.

Fourth: make the necessary recommendations to improve the efficiency of working capital

management in the Jordanian commercial banks.

Study Problem:

policies on working capital decisions Include relating to the assets traded in terms of the

elements of the composition, how to use them, the effect of composition on the risks and

returns, and policies are necessary for the growth of banks on long-term survival. Unless

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available at banks working capital needed to increase investments, you may miss

opportunities to increase repeat profits. Also, the banks that retain a high level of working

capital have available liquidity to enable them to meet their obligations accrual, if what

happened Conversely, banks face the burdens associated with low credit rating and

compulsory liquidation, So we can summarize study problem through questions :

- Is there any effect of working capital in the Jordanian commercial banks on the profitability

of those banks?

- Is there any effect of working capital in the Jordanian commercial banks on the market value

of those banks?

- Is there much effect on bank profitability and market value depending on the components of

working capital in the Jordanian commercial banks?.

Hypotheses: Study Hypotheses put to answer the problem of the study, and was formulated

as:

The first hypothesis:

Ho: there is no impact of the working capital in commercial banks on the profitability of those

banks. Which emanated to the following sub-hypotheses:

Ho: there is no impact for the cash balances in working capital in the Jordanian commercial

banks on the profitability of those banks.

Ho: there is no impact for the commercial paper discounted of working capital in the

Jordanian commercial banks on the profitability of those banks.

Ho: there is no impact for the portfolio in working capital in the Jordanian commercial banks

on the profitability of those banks.

The second hypothesis:

Ho: there is no impact for the working capital in commercial banks on the market value of

those banks. Which emanated the following sub-hypotheses:

Ho: there is no impact for the cash balances in working capital in the Jordanian commercial

banks on the market value of those banks.

Ho: there is no impact to the commercial paper discounted for working capital in the

Jordanian commercial banks on the market value of those banks.

Ho: there is no impact to the portfolio for working capital in the Jordanian commercial banks

on the market value of those banks.

Model study: Study Model depends on determine the dependent variable and the independent

variables according to the following regression equation:

Y1, (Y2) = a + b (X1), (X2), (X3) Where is :

Y1: The dependent variable (the profitability of banks) return on assets ratio (ROA).

Y2: The dependent variable (market value) the market value on the closing prices of the

shares of commercial banks in the Amman Stock Exchange during the study period.

a: the value of the constant b: A mile of the curve

X1: The first independent variable is the amount of cash balances in working capital.

X2: Second independent variable is the amount of the Bank's investments in commercial

paper discounted in working capital.

X3: Third independent variable is the amount of the Bank's investments in securities within the portfolio of working capital.

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The regression analysis was used within the statistical package E-views and to measure the

impact of factors Independent Group, which will be addressed in separate financial analysis and hypothesis testing. Definitions of Study Terminology:

- Return on Assets: Profitability ratios measure the effectiveness of recruitment in assets and

facilities can be calculated by dividing net income by total assets.

The rate of return is calculated on assets according to the following equation:

Net income (profit after interest and tax) / total assets of the company

- Commercial papers (accounts receivable): Type of facilities that companies give to other

individuals or companies guarantee returns for the goods that are selling to be paid the value

of these securities later.

- Cash balances : Money is kept by the bank in the form of cash in vaults or at the Central

Bank in the form of current accounts to meet the deposit withdrawals.

- Securities portfolio: Portfolio combination or a group of investment tools, whether real or

maintained by the financial investor in order to achieve a return at a reasonable level of risk

through diversification of its components.

- Market value: The current value of securities and registered according to the latest prices

on the flimsiest higher market prices that can be sold securities in the market

- Book value: Reflect the book value of the total capital contribution , retained earnings and

reserves in the value of the company's shares. Statistical analysis method:

It was used statistical packages (E-VIEWS) to test each of the sub-hypotheses both separately

as statistical packages used to test the sum of independent factors and their impact on the

dependent variable.

The timeframe of the study:

Depends researcher conducted a study on the financial statements of the Jordanian

commercial banks (sample) for the time period of the year 2000 until 2011.The researcher

believes that this relatively recent period and reflect the latest developments and financial

reflection of the global financial crisis on the financial statements of the Jordanian commercial

banks . Society and the study sample :

The study population consists of all licensed commercial banks that operating in Jordan

according to the classification of the Jordanian Central Bank, this category includes 8

commercial banks 5 investment banks and Islamic banks (11) foreign banks.

The study sample . the study sample Include (9) Jordanian commercial banks. These banks were chosen for being the largest Jordanian banks in terms size of assets which

constitute about 88% of the total volume of assets of Jordanian banks. Data Sources. I had got data from secondary sources ", monthly newsletters and annual

reports that issued officially . And got the raw data through some of specialists in banking

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The unit of analysis .Unit of analysis in this study are the financial statements (balance sheet

and income statement) for commercial banks and the notes attached with those lists as

published Jordanian commercial banks ..

Previous studies :

Study (Sabri, 2012) entitled: the impact of working capital , characteristics of the

company's profitability and market value, "An Empirical Study on industrial companies

listed on the Amman Stock Exchange",2012. The aim of this study is to examine the

relationship between working capital and the profitability of the company , with working

capital and the value of the company on the other hand . It also aims to research the

differences between companies that have high cash conversion cycle, and companies that have

a low cash conversion cycle in terms of profitability and value.To achieve the objectives of

the study sample was selected from the Jordanian industrial companies that listed in Amman

Stock Exchange . Also study covered the period from 2000 to 2009, used regression analysis,

Mann-Whitney test to test hypotheses. The results showed that the average cash conversion

cycle is equal to 2.9 days, and that working capital is 51% of total assets, also showed the

presence of the opposite effect with statistical significance of the cash conversion cycle, and

the accounts receivable and debt on profitability. As for the payables period was adversely

impact the results showed a positive and significant impact statistically to the size of the

company and sales growth on profitability.

As for the relationship cycle cash transfer and the receivables valued company, the results

indicate the presence of the opposite effect and a statistically significant value of the

company, results showed also a difference with statistical significance among companies that

have conversion cycle cash high and companies that have cycle cash transfer low in terms of

profitability and value, and finally weighted index showed the cash conversion cycle

improvement in the management of working capital .Study (Haddad, 2010) entitled: cash

flow management role in the efficiency of capital investment in the Libyan commercial

banks. This study aimed to indicate the role of cash flow management in the efficiency of

capital investment in Libyan commercial banks, through shed light on cash flow management

in general. The study found a range of important results: there are some bugs in the

management of cash flows commercial banks, which reflects negatively on their ability to

predict cash flows in terms of timing and size, also the results indicated that the lacks in

current planning of cash flows, in addition to significant differences of statistical significance

between Libyan commercial banks management cash flows regarding the ability to predict

future cash flows, and the extent of its reliance on planning cash sound and effective, results

of the study also indicated to a lack of statistically significant differences between the

commitment controls targets commercial banks (profitability, liquidity and safety) on the one

hand, and the extent of its reliance of financial analysis methods on the other hand.

In the light of previous findings the study concluded a set of recommendations which are: to

improve the ability of cash flow management in commercial banks with cash flow forecasting

in terms of timing and size of the deadlines are different, greater attention to the preparation of

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budget estimates, in addition to increasing the degree of flexibility and adjustability of the

planning flows cash to upgrade the current planning and building policies .Study (Alnnif,

2009) entitled: developing a model to predict the level of working capital investment in

Jordanian Industrial Corporations, 2005 .This study aims to develop a model to predict the

level of investment in working capital in the Jordanian industrial companies as a whole and

the development of sub-models for each of the main components through analysis of the

variables that affect investment decisions. To achieve objectives of the study, the researcher

selected a sample from twenty-nine Jordanian industrial companies that listed on the Amman

Stock Exchange, until 72 companies and the researcher collects financial data from 1994 to

2003 and then their numbers to conduct statistical tests necessary using the software package

Statistical SPSS and software package E-views , and with a view to reaching an appropriate

standard model to estimate the limitations impact on the level of working capital investment

researcher has used a model based on the (panel data) that combined between the evidence

incisive data and time series.The results showed that the central level of working capital

investment and its components of cash , receivables and inventory as a percentage of fixed

assets amounted to (1.3, 0.07, 0.39, 0.56), respectively, as indicated by the general trend of the

average investment in each of the capital and its components the length of the cash transfer ,

the percentage of sales growth upward, while the trend analysis of the proportion of leverage

was descending , the general trend of average return on assets was relatively stable, results

also proved that the variables that affect in determining the working capital investment are

profitable to company , percentage of sales growth , age of the company and the proportion of

financial leverage and the length of the cash transfer, but the variables that affect in the level

of investment in cash is the company's life and profitability only, and variables that determine

the level of investment in the receivables are profitability , growth of sales , the company's life

, the length of the cash transfer, and finally, the variables that influence in determining the

level of investment in inventory was only leverage ratio. The researcher in the study

recommended the adoption of the model that had reached to determine the level of investment

in working capital and using of modern electronic payment to shorten the period of collection

of accounts receivables.Study (Aghbari, 2007) entitled: The Effect of leverage on the

financial performance of food companies Yemeni 2007. Researcher aimed through a study

to test score impact leverage and (short-term liquidity measured degree of capital adequacy,

degree adequacy of working capital) separately, in addition to displaying the results for

impact of leverage on the financial performance of Yemeni food industries through the

variables of the value of the facility and short liquidity. The researcher reached a significant

impact of leverage on the value of the facility at the level of all companies, and to the

existence of significant influence of leverage (at the level of each company separately) on

short-term liquidity, but for the first variable's researcher recommends companies in order to

increase the effectiveness of impact Leverage, the value of the entity rely on sources of

financing long-term (long-term loans) and employment are leading to increase cash flows,

with respect to the second variable (short-term liquidity), the researcher believes that using of

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these companies sources of funding short-term are highly reliable . Thus, the researcher

recommends against increasing reliance on sources of funding short-term.Study (Uyar Ali,

2010) entitled:The relationship of Cash Conversion Cycle with Firm Size and

Profitability: an Empirical Investigation in Turkey. The aim of this study was to determine (Benchmarks) or index- cash cycle transfer of

industrial and commercial companies, to test the relationship between cash cycle transfer and

size of the facility, also between cash cycle transfer and profitability, The researcher collected

data for the study from Istanbul Stock Exchange for the year 2007, the number of companies

sample are 166 companies.It was measured size of the enterprise total assets, as well as sales

revenue, while measure profitability by using return on assets and return on equity, researcher

had used statistical analysis to test hypotheses by using the ANOVA test and Pearson

correlation .The results showed that the average cycle cash transfer (102) day for all

companies, less average cash cycle transfer and found sector wholesale and retail average (34)

days, followed by industry, chemical industry, metal goods, food, cement, and finally the

textile sector, respectively.The reason that the average cash cycle transfer for trade sector less

than the average cycle cash transfer because the wholesale and retail keeps stock for a period

of less average of (54) days, and the highest average cash cycle transfer to the textile sector

average (164) days, the sector retains stock for a long period average (133) days, as well as

the collection period of the receivables take a long time in this sector. With regard to the

relationship cash cycle transfer profitability, it has used Pearson correlation that results

showed an inverse relationship and statistically significant between the return on assets and

cash cycle transfer, there is a relationship statistically significant between return on equity and

cash cycle transfer, also there is an inverse relationship between the size of the facility and the

cash conversion cycle , finally results showed that the profits of the firms which had a low

cash conversion cycle higher than enterprises that have high cash conversion cycle

Study researcher (,Akinwande2010) entitled: Working Capital Management in

Telecommunication Sector .Objective of this research is to study the effect of working

capital management in small and medium-sized enterprises, through the usages of

telecommunications company in Sweden as a case study, and to identify the most factors

influential, such as management of cash, inventory management and credit management,

which collectively affect the effectiveness of the company, and the impact on the slow growth

of the company. To achieve the goal of the study,it was drafted questionnaire developed

through literature review, in addition to the usage of a range articles in scientific journals and

opinions of employees, also the research had been using the internet and e-mail messages to

send the questionnaire where appropriate, The researcher reached a set of results confirm

study on the same assumptions and Weston and others that the company's investment in

working capital constitutes a large proportion of the total investment, where it reached in the

case of telecommunications company, to 65 percent. The record company's performance in

the various components of working capital management as follows, cash management 65.4%,

inventory management 78.6% of trade credit, the administrative and financing decisions

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60.0% and the average overall performance of the company is 68%, it shows that the

performance of company is above average, and enhances data analysis financial health of

these results, the percentage of high liquidity, collection period is short, and the cycle of

liquidity is not wide ,These three factors are critical to the growth or failure of the business ,

therefore, the performance good in working capital management, which affects the Three

factors positively and, which contribute to the growth and success of the business. Study

(Haitham Nobanee and Maryam Alhajjar 2009) entitled:

A note on working Capital Management and Corporate Profitability of Japanese Firms.

The main objective of the researchers of this study is to find out the relationship between

working capital and profitability, they adopted analysis on a sample of 2123 companies non-

financial Japanese listed on the Tokyo Stock Exchange, covering the period between 1990 -

2007, and includes data collected sales, cost of goods sold, receivables, payables, inventory

and return on investment, in order to calculate the receivables and the payables, the stock and

the cash transfer, but companies that did not have the necessary data to calculate these ratios

have been deleted from the sample, they have been using regression analysis and testing

Spearman in order to analyze the data, so the results showed that the average period for the

collection of receivables (90) days, (67) days of the sale of inventory, the accounts payable

(79) days, the average cycle cash transfer for the entire period equal to 76 days. The results of

this test (Spearman) showed that there was an inverse relationship and statistically significant

between cycle of cash transfer and profitability Regarding relationship period payables

profitability, the researcher had tested the relationship for the period (1990 - 2007), The

results showed a positive relationship, but when it was tested relationship for the entire period

(1990-2007), the results showed that the relationship is negative, they had been interpreted by

the researcher results that when an entity delaying the repayment period, it increased the

profitability in the short term, but hurt its reputation and reduce the long-term profits.

Statistical analysis and hypothesis testing

First: The statistical analysis method . The researcher using analysis of simple and multiple

regression through statistical packages E-views, because the regression analysis based on the

estimate of the relationship between the dependent variable and the independent variable in

the simple regression model or the relationship between the dependent variable and the

number of variables independent form of multiple regression, it helps us to understand the

changes in the dependent variable due to changes that occur for a variable or independent

variables, ie how they affect the independent variables or the independent variable on the

dependent variable, Analysis of regression helps us to understand any of the independent

variables associated variable's.

Hypothesis testing: :

The first basic hypothesis :Ho: there is no impact to the working capital in commercial banks

on the profitability of those banks.

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Table (1) Multi-regression for ROA with CASH & SEC & DISSEC

Dependent Variable: ROA

Method: Least Squares

Sample: 1 90

Included observations: 90

Variable Coefficient Std. Error t-Statistic Prob.

C 0.035701 0.007514 4.751204 0.0000

CASH -0.064594 0.015506 -4.165671 0.0001

SEC 0.020514 0.022549 0.909754 0.3655

DISSEC -0.047777 0.026383 -1.810905 0.0736

R-squared 0.228166 Mean dependent var 0.012851

Adjusted R-squared 0.201241 S.D. dependent var 0.011080

S.E. of regression 0.009903 Akaike info criterion -6.348598

Sum squared resid 0.008433 Schwarz criterion -6.237496

Log likelihood 289.6869 F-statistic 8.474302

Durbin-Watson stat 1.718684 Prob(F-statistic) 0.000054

Which:

ROA: return on assets

CASH: cash balances

SEC: portfolio

DISSEC: discounted commercial paper portfolio

When testing this first statistically amounted factor interpretative R2 about 22% as shown in

Table (1) This means that the capacity range of factors independent combined (cash ,

securities portfolio and portfolio trading papers discounted) explained the change in (rate of

return on assets) amounted to only 22% . this low rate means that there are other factors that

might contribute the impact on the profitability of banks in addition to a variety of working

capital, also this effect is statistically significant for this model at a level less than 1%, where

it is less than 5% for the F-test , thus rejection the hypothesis that has to be there is an impact

of working capital on the profitability for those banks. Although the above independent

factors different impact on the Group's only that this effect takes the total factors in multiple

regression analysis with each other fully and not measure the impact of each factor

independently which had been shown at the above analysis that the portfolio securities did not

have an effect on the dependent variable while the remaining factors were influential, has

devided from this hypothesis the following sub-hypotheses

: - The first sub-hypothesis :

Ho: No impact of cash balances in working capital in the Jordanian commercial banks on the profitability

of those banks

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Table (2) Simple-regression for ROA with CASH


Method:Least Squares Sample: 1 90



C 0.031059 0.004599 6.752814 0.0000

CASH -0.052388 0.012865 -4.072074 0.0001







When testing this hypothesis statistically amounted factor interpretative R2 about 15.8% as

shown in Table (2) This means that the ability independent factor (cash balances) explain the

change in (return on assets) amounted to 15.8% only, this ratio means cash balances the

largest percentage in the interpretation of the change in profitability (return on assets) which

increased 69.5% of the total independent variables, also this effect is statistically significant

for this model at a level less than 1%, which is less than 5% for test T , thus there is an impact

of cash balances on the profitability for those banks.This is also not consistent with the

economic theory that there were an inverse relationship between the size of cash balances and

bank profitability which examine the financial statements of commercial banks and find that

Jordanian banks have liquidity exceeding in the aggregate the prescribed percentage of the

Central Bank of Jordan, which must not be less than 30% of the volume of liquid assets ,

therefore, the availability of liquidity was evidence of the strength of these banks

.

- The second sub-hypothesis

Ho: There is no impact to the commercial paper discounted in working capital the

Jordanian commercial banks on the profitability of those banks .

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Table (3) Simple-regression for ROA with DISSEC



Sample: 1 90



C 0.013144 0.001609 8.167846 0.0000

DISSEC -0.005988 0.022479 -0.266388 0.7906


Adjusted R-squared -0.010549 S.D. dependent var 0.011080





When testing this hypothesis statistically the value factor interpretative R2 less than 0.5% as

shown in Table (3) This means that the ability independent(portfolio of commercial papers

discounted) to explain the change in the group of (return on assets) of less than 0.5%this ratio

that means portfolio ratio 0.003% a percentage III: interpretation of the change in profitability

(return on assets) among other independent variables, this effect is not statistically significant

at 79% where it is greater than 5% of T test , thus acceptance of there was no effect of

discounted commercial paper portfolio on the profitability for commercial banks.

- The third sub-hypothesis:

Ho: there is no impact to the portfolio in working capital in the Jordanian commercial

banks on the profitability of those banks

Table (4) Simple-regression for ROA with SEC



Sample: 1 90



C 0.007875 0.002276 3.459531 0.0008

SEC 0.052657 0.020887 2.521072 0.0135








shown in Table No. (4) This means that the ability of (portfolio) to explain the change in the

group of (return on assets) amounted to 6.7% only , this ratio meanshe was a worker portfolio

ratio 29.5% in the interpretation of the change in profitability (return on assets) of the other

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total independent variables, this effect is statistically significant for this model at 1.35%, less

than 5% to T test , therefore ,there is an effect of the securities portfolio on the rate of return

on assets.

Second basic premise:

Ho: there is no impact to the working capital in commercial banks to the market value

of those banks

Table (5) Multi-regression for MVBV with CASH & SEC & DISSEC

Dependent Variable: MVBV


Sample: 1 90



C 3.083023 0.780964 3.947714 0.0002

CASH -2.790369 1.611597 -1.731431 0.0870

SEC -0.530480 2.343582 -0.226354 0.8215

DISSEC -5.139710 2.742026 -1.874420 0.0643



S.E. of regression 1.029204 Akaike info criterion 2.938874

Sum squared resid 91.09639 Schwarz criterion 3.049977

Log likelihood -128.2493 F-statistic 1.691811


Which:

MVBV: the ratio of market value to book value of the share price

CASH: cash balances

SEC: portfolio



shown in Table No. (5) This means that the capacity range of factors independent (cash ,

securities portfolio and portfolio trading papers discounted) that explained the change in the

group of (market value to the book value for share price) , only 5.5% this rate is very low,

which means that there are other factors that might contribute to the impact on the market

value of those banks in addition to a variety of working capital, so this effect is not

statistically significant for this model at a level of 17.5%, where it is the largest of 5% to F test

, thus there is no impact to working capital on the market value of those banks, and despite the

different ratio of factors that influence the group of independent especially non-impact cash

balances on market value, but the multiple regression analysis takes the total combined factors

not all independent agent, that devided to the following sub-hypotheses:

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- The first sub-hypothesis:

Ho: there is no impact to the cash balances in working capital in the Jordanian

commercial banks on the market value of those banks

Table (6) Simple-regression for MVBV with CASH



Sample: 1 90


.


C 2.229628 0.468899 4.755026 0.0000

CASH -1.203161 1.311593 -0.917328 0.3615







Which:


CASH: cash balances

When testing this hypothesis statistically amounted factor interpretative R2 less than 0.5% as

shown in Table No. (6) This means that (cash balances) explain the change in the group of

(market value to book value of share price) less than 0.5% this ratio means that securities

portfolio 17% in the interpretation of the change in the market value ratio (market value to

book value of the share price) this effect is not statistically significant for this model at a level

of 36.1%, where it greater than 5% to T test , therefore there is no impact for cash balances

on the market value of those banks. Also they found data for financial banks that cash

balances did not affect the market value of commercial banks shares not influence back to the

devaluation of the Governor of total banking assets . The second sub-hypothesis:

Ho: there is no impact to the commercial paper discounted in working capital in the

Jordanian commercial banks on the market value of those banks

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Table (7) Simple-regression for MVBV with DISSEC



Sample: 190


-.


C 1.948405 0.149758 13.01038 0.0000

DISSEC -2.797198 2.091955 -1.337122 0.1846







Which:



When testing this hypothesis statistically amounted factor interpretative R2 1.9% as shown in

Table No. (7) This means that (commercial paper discounted) explain the change in the group

of (market value to book value of the share price) 1.9% and this rate means that the portfolio

of commercial papers discounted rate 35.7% in the interpretation of the change in the market

value ratio (market value to book value of the share price) between other independent

variables , this effect is not statistically significant for this model at 18.46%, where it is the

largest of 5% to T test , therefore there is no impact of trade portfolio discounted on the

market value of those banks . And by reference to the financial statements of the Jordanian

commercial banks find that the portfolio of commercial papers discounted is not affecting the

market value of the high discount rate in commercial banks, which means its impact on the

profitability of banks more than its impact on the market value.

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DECEMBER 2013

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- The third sub-hypothesis:

Ho: there is no impact to the portfolio in working capital in the Jordanian commercial

banks on the market value of those banks

Table (8) Simple-regression for MVBV with SEC Dependent Variable: MVBV


Sample: 1 90



C 1.628429 0.220341 7.390505 0.0000

SEC 1.937019 2.021718 0.958106 0.3406







Which:


SEC: portfolio

When testing this hypothesis statistically amounted factor interpretative R2 1% as shown in

Table No. (8) This means that (portfolio) explains the change in the group of (market value to

book value of the share price) 1% , this ratio means portfolio ratio 18.5% in the interpretation

of the change in the market value ratio (market value to book value of the share price)

between other independent variables, this effect is not statistically significant for this model at

a level of 34% as it is larger than 5% to T test , therefore there is no impact of portfolio

securities on the market value of those banks.

Table (9): Correlation of matrix: (between independents variables)

DISSEC CASH SEC

DISSEC 1.000000

CASH -0.478591 1.000000

SEC -0.364756 -0.154428 1.000000

Which:

CASH: cash balances

SEC: portfolio


It was conducted this test (matrix of Pearson correlation) the aim is to make sure that there are

no relationships collinear (Multi-Collinearity) between the independent variables of the study

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DECEMBER 2013

VOL 5, NO 8

(cash , securities portfolio and portfolio trading paprs discounted) , all these ratios less than

80% as shown in Table (9), which means that there is a collinear relationship between the

independent variables in this study.

III: Summary of Results:

1. The results of the statistical tests supports the existence of any effect that the impact of

working capital on the profitability for those banks.

2. But for the impact of cash balances were negative (negative relationship) , whenever the

more cash the less profit.

3. For securities portfolio there was positively impact (positive relationship), the more size of

portfolio of commercial papers the higher profitability was findings which supported the

existence of this effect on both cash balances and securities portfolio.

4. With regard to the impact of discounted commercial paper portfolio results were supported

there is no impact on the profitability of the bank portfolio.

5. With regard to the impact of working capital , cash balances , portfolio discounted

commercial paper and commercial paper portfolio to market value, the results were supports

that there is no statistically significant effect of total factors collectively and individually on

the market value.

IV: Recommendations:In the light of previous findings of the study to a set of

recommendations, namely:

1. Working to improve the ability of management working capital in the Jordanian

commercial banks by increasing the interest level of liquidity , portfolio commercial paper

discounted and securities portfolio .

2. Increasing attention to the preparation of financial statements, as well as to increase the

degree of flexibility and adjustability of cash flow planning to raise the efficiency of current

planning in working capital.

3. Building investment policies in working capital management and funding sources to

enhance the ability of banks, and not to rely on funding from short-term sources that affect the

level of departments and profitability.

4. Developing an integrated program to create awareness administrative and accounting, in

order to develop and improve the efficiency of working capital management to increase the

attention of senior management.

5. Development of control systems and supervision of employees manages a portfolio of

securities , commercial paper discounted, and supply departments of commercial banks

qualified human elements and capable of performing the work to the fullest.

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DECEMBER 2013

VOL 5, NO 8

References

First: Books

1- Falah al-Husseini, bank management, third edition, Dar Wael for publication, Amman,

Jordan, 2006.

2 - Mohammed Saeed Abdul Hadi, financial management, First Edition, Hamed Publishing

House, Amman, Jordan, 2000.

3 - Mohamed Serafi, bank management, first edition, meet for printing and publishing,

Alexandria, Egypt, 2006.

4 - Mufleh Mohammed's mind, presented in the financial management and financial analysis,

third edition, Future Publishing and Distribution, Amman, Jordan, 2004.

5 - Munir Ibrahim al-Hindi, financial management entrance contemporary analysis, the first

edition, the modern Arab Bureau, Alexandria, Egypt, 1999.

6 - Munir Ibrahim al-Hindi, Banking and Finance Terminology, Fourth Edition, American

Bankers Association, USA, 1999.

7 - Clyde P. Stickney and Paul R. Brown, Financial Reporting and Statement Analysis, Fourth

Edition, Dryden Press, USA, 1999.

8 - Eugene F. Brigham and Phillip R. Daves, Intermediate Financial Management, seventh

edition, SOUTH - WESTERN, USA, 2002.

9 - Fred R. Kaen, Corporate Finance, First Edition, Blackwell Publishers, USA, 1995.

Second: Thesis and Dissertations

- Tamer Bahgat Sabri, impact of working capital , the characteristics of the company's

profitability and market value, "An Empirical Study on industrial companies listed on the

ASE", Ph.D. thesis unpublished, College of Banking and Finance, Arab Academy for Banking

and Financial Sciences, Amman, Jordan, 2010.

2 - Mohammed Aghbari wealth, leverage effect on the financial performance of the companies

Yemeni food industries, unpublished Master, University of Sana'a, Yemen, 2002.

3 - Jamal al-Haddad, role of cash flow management in the efficiency for capital investment in

the Libyan commercial banks, unpublished Master, Department of Banking and Finance, Al

al-Bayt University, Mafraq, Jordan, 2005.

4 - Khalid Alnnif, develop a model to predict the level of working capital investment in

Industrial Corporations Jordan, unpublished Ph.D. thesis, Amman Arab University, Amman,

Jordan, 2005.

5 - Gbenga Segun Akinwande, Working Capital Management in Telecommunication Sector,

Master's thesis in business administration, School of Management, Blekinge Institute of

Technology, Sweden, 2011.

Third : Journals

1- Haitham Nobanee and Maryam Alhajjar, A Note ON working Capital Management And

Corporate Profitability Of Japanese Firm, http://ssrn.com/abstract=1433243.

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DECEMBER 2013

VOL 5, NO 8

2- Uyar Ali, The relationship of Cash Conversion Cycle with Firm Size and Profitability: an

Empirical Investigation in Turkey , International Research Journal of Finance and Economics

, No, 24 , 2009.

Fourth: Government sources :

1 - Central Bank, the Department of Research and Publications, Jordan, Annual Report,(

2010,2011,2012) .

Documents

Impact of working capital on the market value and …2 - Working capital needs to the importance of special management of commercial banks to speed the movement and its importance