Last Updated on October 27, 2023 by Fiza Khurram
Scholars Muhammad Rehan and Mubasher Nazir from the University of the Punjab’s Hailey College of Banking & Finance set out to understand how effective working capital management might improve the financial standing of Islamic banks in Pakistan.
The research is based on careful analysis that uses multiple methods and techniques. These include the random-effects, fixed-effects, pooled-effects, and static Generalized Moments (GMM) approaches. It analyzes 15 Islamic banks in Pakistan, using a diverse set of data over the last decade.
The ratios of return on equity (ROE) and return on assets (ROA) are analyzed, while a wide variety of other variables, such as financial leverage, asset size, profit after tax, and the working capital cycle, are used as explanatory variables.
The findings of this thorough investigation are instructive. The study reveals how the working capital cycle, profit after tax, and net profit margin have significant effects on the financial standing of Islamic banks in Pakistan. The rate of profit made from an investment is affected by several factors. Return on capital employed, net profit margin, asset size, and the current ratio are all indicators used to calculate ROE, and they all have a positive and material impact on ROE.
These results are consistent with the literature and provide important lessons for decision-makers in both developing and advanced economies. In the context of Islamic banking, they highlight the significance of focusing on working capital drivers to boost overall bank performance.
This study adds significantly to the existing literature and paves the way for scholars to come, providing a solid basis for further investigation.
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