Investigating the role of different industries on relationship between working capital management and Tobin’s Q

Article history: Received May 12, 2013 Received in revised format 12 September 2013 Accepted 6 October 2013 Available online October 16 2013 This paper presents an empirical investigation to study the effect of industry type on relationship between Tobin’s Q and working capital management among selected firms from Tehran Stock Exchange. The proposed study gathers the necessary financial information from 219 different firms over the period 2001-2011 and categorizes them based on different sectors. There are five independent variables including current ratio, the ratio of current assets to total assets, debt ratio, the ratio of current liabilities to total assets and total cash. Using a linear regression by considering type of industry as dummy variable, the study detects that there was a positive and meaningful relationship between working capital and Tobin-Q in various industries. © 2013 Growing Science Ltd. All rights reserved.


Introduction
Working capital plays essential role on financial management and there are many studies to find how this could increase profitability of an organization (Filbeck & Krueger, 2005).Deloof (2003) investigated the relationship between working capital management and corporate profitablity for a sample of 1,009 large Belgian non-financial companies over the period 1992-1996.The author computed trade credit policy and inventory policy by number of days' accounts receivable, accounts payable and inventories, and applied the cash conversion cycle as a comprehensice measure of working capital management.They reported that managers could increase corporate profitablity by reducing the number of days' accounts receivable and inventories.Eljelly (2004) investigated the relationship between profitability and liquidity measured by current ratio and cash gap on a sample of joint stock companies in Saudi Arabia.Using correlation and regression analysis the study reported substantial negative relationship between the firm's profitability and its liquidity level, as measured by current ratio.This relationship was more evident in firms with high current ratios and longer cash conversion cycles.At the industry level, nevertheless, the study detected that the cash conversion cycle or the cash gap was of more importance as a measure of liquidity than current ratio that influences profitability.The size variable was also detected to have significant impact on profitability at the industry level.Samiloglu and Demirgunes (2008) investigated the effect of working capital management on firm profitability by looking into some evidence from Turkey.García-Teruel and Martínez-Solano (2007) provided some empirical evidence on the effects of working capital management on the profitability of a sample of small and medium-sized Spanish firms.Gardner et al. (1986) investigated working capital policy and operating risk.Padachi (2006) studied trends in working capital management and its impact on firms' performance.

The proposed study
This paper presents an empirical investigation to study the effect of industry type on relationship between Tobin's Q and working capital management among selected firms from Tehran Stock Exchange (Gundavelli, 2006).The proposed study gathers the necessary financial information from 219 different firms over the period 2001-2011 and categorizes them based on nine different sectors.There are five independent variables including current ratio, the ratio of current assets to total assets, debt ratio, the ratio of current liabilities to total assets and total cash.CR it (nt) =Cash of the firm (industry) i(n) in time t, CACLR it (nt) = Current assets to current liabilities of firm (industry) i(n) for time t, CATAR it (nt) = Current assets to total assets of firm (industry) i(n) in time t, CLTAR it (nt) = Current liabilities to total assets of firm (industry) i(n) in time t, DR it (nt) =Total debt to total assets of firm (industry) i(n) in time t, e = error term of the model There are two regression models and two dependent variables as follows, TQ it = Tobin's Q of firm i for time t, TQ nt = Tobin's Q of industry i for time t.
Tobin's Q is calculated as Tobin's Q= (MVE+BVE)/ TAE where MVE represents market value of equity, BVE is equal to total liabilities of the firms, which are subject to interest and TAE is equal to total assets of the firm (Chung & Pruitt, 1994).The proposed model of this paper uses the following two models to verify the hypothesis of this survey, Table 1 demonstrates the summary of some basic statistics on some selected data.

Table 1
The summary of some basic statistics Since the proposed study of this paper intends to use linear regression technique, we need to make sure about the normality of data.Table 2 summarizes the results of our survey based on three different statistical observations and the results indicate that the data were not normally distributed.As we can observe from the results of Table 4, all F-value statistics are significant with α = 5%.In addition, all Durbin-Watson values are within acceptable limit, which means there is no autocorrelation among residuals.Finally, we have considered the correlation ratios among independent variables and we may precede the regression analysis.

The results
In this section, we present details of our investigation on measuring the impact of various factors on Tobin's Q.The results of linear regression model are given in Eq. ( 3) as follows, (4) In Eq. ( 4), F-value = 17.61734,Durbin-Watson = 1.584184 and Adjusted R-Square = 0.104768.In addition, all t-student values are statistically significance with α=5%.Therefore, we can confirm the main hypothesis of this survey and conclude that working capital positively influences Tobin-Q.

The effect of working capital on Tobin-Q in Sugar industry
The first sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in Sugar industry, which is summarized in Eq. ( 5) as follows, (5) In Eq. ( 5), F-value = 6.059623,Durbin-Watson = 1.546586 and Adjusted R-Square = 0.142687.In addition, all t-student values are statistically significance with α=5%.Therefore, we can confirm the first sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in sugar industry.

The effect of working capital on Tobin-Q in Food industry excluding sugar
The second sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in Food industry excluding sugar, which is summarized in Eq. ( 6) as follows, In Eq. ( 6), F-value = 6.566695,Durbin-Watson = 1.519414 and Adjusted R-Square = 0.093768.In addition, most t-student values are statistically significance with α=5%.Therefore, we can confirm the second sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in food industry.

The effect of working capital on Tobin-Q in Rubber and Plastic
The third sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in Rubber and Plastic industry, which is summarized in Eq. ( 7) as follows, In Eq. ( 7), F-value = 2.567749, Durbin-Watson = 1.736060 and Adjusted R-Square = 0.023637.In addition, most t-student values are statistically significance with α=5%.Therefore, we can confirm the third sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in Rubber and Plastic industry.

The effect of working capital on Tobin-Q in Basic metals
The fourth sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in basic metals industry, which is summarized in Eq. ( 8) as follows, TQ = 0.332 + 0.297*CACLR -0.227*CATAR + 0.823*CLTAR -0.718*DR + 2.174*CR (8) In Eq. ( 8), F-value = 5.356019, Durbin-Watson = 1.603270 and Adjusted R-Square = 0.088616.In addition, most values are statistically significance with α=5%.Therefore, we can confirm the fourth sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in basic metals industry.

The effect of working capital on Tobin-Q in machinery and equipment
The fifth sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in machinery and equipment industry, which is summarized in Eq. ( 9) as follows, TQ = 0.663 + 0.107*CACLR -0.349*CATAR + 0.0657*CLTAR -0.164*DR + 1.047*CR (9) In Eq. ( 9), F-value = 2.962216, Durbin-Watson = 1.721660 and Adjusted R-Square = 0.238213.In addition, most t-student values are statistically significance with α=5%.Therefore, we can confirm the fifth sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in machinery and equipment industry.

The effect of working capital on Tobin-Q in Auto industry
The sixth sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in Auto industry, which is summarized in Eq. (10) as follows, TQ = 0.795 + 0.055*CACLR -0.264*CATAR + 0.284*CLTAR -0.402*DR -0.060*CR (10) In Eq. ( 10), F-value = 6.430626,Durbin-Watson = 1.540982 and Adjusted R-Square = 0.219523.In addition, most t-student values are statistically significance with α=5%.Therefore, we can confirm the sixth sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in Auto industry.

The effect of working capital on Tobin-Q in Cement industry
The seventh sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in Cement industry, which is summarized in Eq. ( 11) as follows, TQ = 0.826 -0.567*CACLR + 5.401*CATAR + 3.641*CLTAR -2.450*DR + 2.254*CR (11) In Eq. ( 11), F-value = 5.171825, Durbin-Watson = 1.587526 and Adjusted R-Square = 0.348283.In addition, most t-student values are statistically significance with α=5%.Therefore, we can confirm the seventh sub-hypothesis of this survey and conclude that working capital positively influences Tobin-Q in Cement industry.

The effect of working capital on Tobin-Q in Drug industry
The eighth sub-hypothesis of this survey is associated with the effect of working capital on Tobin-Q in Drug industry, which is summarized in Eq. ( 12) as follows,

Table 3
also summarizes the results of different statistics to verify whether we should use pooled or panel method.

Table 3
The summary of