Working capital policy refers to a firm's level of investment in current assets to achieve its targets. Research has shown that managing working capital policy significantly impacts a firm's financial performance. Working capital provides liquidity for firms to fund short-term obligations. Studies show that holding too much or too little working capital can both increase costs, through liquidity or illiquidity. A study of Pakistani firms from 1998-2005 found that more aggressive working capital policies were negatively related to firm profitability.