An Investigation into the Impact of Power Outage on Working Capital Management in Textile Sector of Pakistan

Abstract

Purpose: Electricity, being the most important resource for any organization has substantial impact on working capital. So, it is substantial to analyze the impact of acute power shortage on firm’s liquidity and profitability. As acute power shortages in the country adversely affects the performance of firms by reducing profits and enhancing working capital investment cycle, it is noteworthy to analyze the effect of electricity crisis on firm’s need for liquidity. The aim of the research is to find the impact of power outage on working capital and profitability. Design/Methodology/Approach: Using annual financial data of 102 textiles firms from 2008-2020, the study employed panel data analysis to measure the impact of acute power outage on firm’s working capital management. Findings: The results revealed that acute power shortage significantly impact working capital management in textile firms of Pakistan. So, firms must go for alternative energy sources for long-run resulting into huge savings from losses for these firms. Implications/Originality/Value: Motivated by the scarcity of empirical evidences from emerging economies and the importance of working capital efficiency, current study is the need of the day. The impact of power outages need to be explored in detail to gauge its impact on industry’s financial performance.