Working capital management and board diversity towards firm performances in Indonesias LQ45

Purpose
This study examines the effect of working capital management and board diversity on firm profitability and firm value for a sample of Indonesian firms listed in the LQ45 index. The interaction of board diversity components with working capital management adds a comprehensive discussion to enhancing working capital management efficiency.

Design/methodology/approach
This study engages a panel multiple regression method. Data from a sample of LQ45 companies from 2010 to 2016 are analysed using a fixed and a common effect model. Board diversity is further analysed in interaction variables, whether it holds the moderating role in the relationship of working capital and firm performances. This study operates return on capital employed (ROCE) as the proxy of profitability performance and EVA-Spread for the firms value performance. The simultaneous effect test is used for the robustness test.

Findings
The results indicate that working capital management and board diversity have no significant impact towards profitability. However, they significantly positively impact firm value, meaning that the market is attracted by effective working capital management and board diversity. However, the interaction variable analysis shows that gender diversity and education level diversity weaken the impact of working capital management towards firm value.

Research limitations/implications
This study is not limited to one industry; therefore, future studies may focus on one industry and detect the pattern of working capital components in the particular industry. This study focuses on quantitative numbers to explain board diversitys interaction in working capital management to maximise shareholders wealth. Future studies may consider a qualitative discussion to describe the quality of womens presence on the board, education level and educational background of board members.

Originality/value
Unlike most studies in which authors relate working capital and board diversity to firm performances separately, this study combines both components and analyses whether board diversity can act as a moderator effect. As part of corporate governance, it is expected that board diversity can enhance working capital management efficiency.