The Impact of Working Capital Management Upon Companies’ Profitability: Evidence from European Companies

Garcia, Joana Filipa Lourenço; Martins, Fábio C.; Brandão, Elísio

doi:10.2139/ssrn.2165210

Cited by 14 publications

(16 citation statements)

References 12 publications

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“…If the company takes the shorter time to convert its product into cash is profitable for the company. Previous studies that found negative relationship between CCC and the firms' profitability are Mansoori and Muhammad (2012), Garcia et al (2011), Deloof (2003, Ukaegbu (2014), Nzioki et al (2013), Mohamad and Saad (2010), Sabri (2012), Karaduman etal. (2010), Nimalathasan (2010), Charitou et al (2010), Napompech (2012), Mumtaz et al (2013), Bieniasz and Golas (2013) and Bellouma (2011).…”

Section: Cash Conversion Cycle and Firms Performancementioning

confidence: 90%

“…Therefore, the shorter receivable period will give more profit to the firm. Previous authors that found negative relationship between ACP and firms' profitability areGill et al (2010), Mansoori and Muhammad (2012), Garcia et al (2011), Deloof (2003, Vahid et al (2012), Ukaegbu (2014), Akinlo (2012), Sabri (2012), Karaduman et al(2010), Korankye and Adarquah (2013), Charitou et al (2010), Napompech (2012), Mumtaz et al (2013), Vishani and Shah (2007), Usama (2012), Bieniasz andGolas (2011) andBellouma (2011). Therefore, this study hypothesized that: H1: There is a relationship between the average collection period and the firms' performance.…”

Section: Average Collection Period and Firm Performancementioning

confidence: 94%

“…If the company takes longer period to convert the inventory to sales can avoid the shortage of cost. Previous researchers that found positive relationship between ICP and the firms' profitability are Abuzayed (2012), Azam andHaider (2011), Nimalathasan (2010), Chhapra and Naqvi 6 Journal of International Business and Management (JIBM) https://rpajournals.com/jibm relationship between ICP and the firms' profitability are Mansoori and Muhammad (2012), Garcia et al (2011), Deloof (2003, Vahid et al (2012), Ukaegbu (2014), Akinlo(2012), Sabri (2012), Karaduman et al (2010), Sharma and Kumar (2011), Korankye and Adarquah (2013), Charitou et al (2010), Napompech (2012), Mumtaz et al (2013), Vishani and Shah (2007), Bieniasz andGolas (2011) andBellouma (2011). Therefore, this study hypothesized that:…”

Section: Inventory Conversion Period and Firm Performancementioning

confidence: 98%

“…However, if the company took log time to pay their debts, the company would lose the opportunity to take discount on early payment. Some authors that bfound negative relationship between APP and the firms' profitability are Mansoori and Muhammad (2012), Garcia et al (2011), Deloof (2003, Vahid et al (2012), Akinlo (2012), Abuzayed (2012), Sabri (2012), Karaduman et al (2010), Sharma and Kumar (2011), Korankye and Adarquah (2013), Charitou et al (2010), Napompech (2012), Mumtaz et al (2013), Bieniasz and Golas(2011) and Bellouma (2011). Therefore, this study hypothesized that: H2: There is a relationship between the average payable period and the firms' performance.…”

Section: Average Payable Period and Firm Performancementioning

confidence: 99%

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Impact of Working Capital Policies on Firm’s Performance, Evidence from Pakistan

Nadeem¹,

Waris

2020

JIBM

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The main objective our study is to explore the relationship between working capital policies and firm’s performance. Using OLS method to analysis the data after fulfilling the assumption of the regression, this study finds the working capital components (APP, ICP, CCC) and the firms’ performance are negatively correlated with the ROA and Tobin-q except ACP which shows significant relationship with Tobin Q. All working capital components show the significant relationship with ROE, which indicates that most firms used shareholder’s equity to increase firm’s value. The relationship between the APP and the firms’ performance has shown mixed results. This study shows that the ACP and the firms’ performance are positively related. However, the companies are showing the positive relationship between the ACP and the firms’ performance as measured by the ROE and Tobin’s Q. This indicates that the shorter ACP in a firm is more preferable to the shareholders. All companies show a positive relationship between the CFP and the firms’ performance. The relationship indicates that the conservative financing policy is a policy which carries a higher amount of current liabilities will contribute to negative firms’ profitability and value. The negative relationship between the CLTAR and the firms’ performance indicates that the higher current liabilities in a firm will be a factor towards lower firms’ performance. The aggressive financing policy is only significant in all the independent variables. The ROA found CFP and CIP as significant, while in ROE CFP is significant. AIP, CIP and CFP are significant in Tobin Q. Abstract: CATAR, CLTAR, ROI, ROE. Cash Conversion Cycle

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Section: Cash Conversion Cycle and Firms Performancementioning

confidence: 90%

Section: Average Collection Period and Firm Performancementioning

confidence: 94%

Section: Inventory Conversion Period and Firm Performancementioning

confidence: 98%

Section: Average Payable Period and Firm Performancementioning

confidence: 99%

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Impact of Working Capital Policies on Firm’s Performance, Evidence from Pakistan

Nadeem¹,

Waris

2020

JIBM

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“…The same findings turned out to occur in emerging markets of Brazil (Ching et al, 2011) and Philippines (Magpayo, 2011). Likewise, the results of research in developed markets of USA (Gill et al, 2010) and European countries (Garcia et al, 2011). Nazir and Afza (2009) investigated the relationship of WC policy on the company's profitability in Sri Lanka.…”

Section: Literature Reviewmentioning

confidence: 99%

The Integrated Measuring of Working Capital Management Efficiency on Financial Performance in Indonesia Stock Exchange

de¹,

Indiastuti²,

Febrian³

2015

IMBR

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The purpose of this study is to determine the differences effect of working capital efficiency on financial performance during periods of crisis. The measurement is made during the crisis compared to the entire period of observation by using cash conversion cycle (CCC) and working capital policy (both investment policy and financing policy) on the profitability (by return on assets) and market value (by Tobinâ€™s Q). Using all annual financial data of 104 manufacturing firms listed in Indonesia Stock Exchange (IDX) over the period 2005-2013. These periods include the global financial crisis. The panel data set was developed for nine years, which produced 936 firms-years observations. This study uses multivariate regression models with hierarchical regression analysis approach. This approach uses the global financial crisis period as a dummy variable. The results showed that there were differences in the effect of the cash conversion cycle (and its components) and working capital policy on profitability during the crisis period compared to the whole period. In contrast, no differences effect the cash conversion cycle (and its components) and working capital policy on the value of the company in the crisis period compared to the whole period. The manufacturing industries do not apply the efficiency in the management of working capital. The global financial crisis tends the companies to change their working capital policy more efficiently. The researcher can extend this study by doing a qualitative research how to chief financial officers invest and finance day-by-day operation.

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Role of the legal and financial environments in determining the efficiency of working capital management in European SMEs

Mättö

Niskanen

2020

Int. J Fin Econ

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This paper focuses on whether the rule of law or capital market development can explain observed differences in working capital levels and trade credit in SMEs from 13 EU countries. Our findings indicate that the working capital levels are lower and working capital management is thus more efficient in countries with safer legal systems and better investor protection. We also find that operating in a market‐based capital system has a negative effect on the cash conversion cycle (CCC). This implies that firms operating in countries with a market‐based system as opposed to a bank‐based system have better opportunities to manage their working capital. Our findings indicate that country‐level legal instruments explain much of the cross‐country differences observed in working capital. The results also suggest that working capital practices and the extent to which trade credit is used are a product of the legal system and the financial systems in place in each country. If the financial system changes, the trade credit practices can also be expected to change.

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The Impact of Working Capital Management Upon Companies’ Profitability: Evidence from European Companies

Cited by 14 publications

References 12 publications

Impact of Working Capital Policies on Firm’s Performance, Evidence from Pakistan

Impact of Working Capital Policies on Firm’s Performance, Evidence from Pakistan

The Integrated Measuring of Working Capital Management Efficiency on Financial Performance in Indonesia Stock Exchange

Role of the legal and financial environments in determining the efficiency of working capital management in European SMEs

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