Working capital management and firm’s profitability: Evidence from Czech certified firms from the EFQM excellence model

Abstract

Working capital management (WCM) is one of the most important decisions for all firms. The main components of WCM are days sales outstanding (DSO), days inventory outstanding (DIO), days payable outstanding (DPO), and cash conversion cycle (CCC). Using a sample of 332 Czech firms, including 20 certified firms from the EFQM (European Foundation for Quality Management) Model, the current study explored the effects of the main components of WCM on firms' profitability. We used two different regression models to test the hypothesis, i.e. pooled regression and maximum likelihood estimation (MLE). The findings of the research revealed all the components of WCM have a negative impact on firm profitability. On the other hand, the interaction terms of the EFQM certified firms with the components of WCM showed a positive impact on firms' profitability which means that there is a positive relationship between the components of WCM of the certified firms and profitability. However, it is examined that the quality certificate/ award from EFQM Excellence Model decreases the firm's profitability. The outcomes of the current research will be beneficial to academics, managers, leaders, and directors of the firms to improve their firm's profitability.

Impact of Working Capital Management on Firm Performance: A Comparative Analysis between Technology and Communication Sector Versus Power Generation and Distribution Sector Listed in Pakistan Stock Exchange

“…On the other hand, for the sector power generation and distribution, only the current ratio and accounts receivable turnover has a positive and all the other variables has a negative relationship with return on asset having 78% impact and for return on equity accounts payable turnover, and inventory turnover has a negative and other all variables has a positive relationship with 77% impact. The results are in line with ( Alvarez, Sensini and Vazquez, 2021) while inconsistent with (Yousaf, Bris & Haider, 2021).…”

“…For Technology & communication sector, all the variables have a positive relationship with ROA and ROE but for return on asset CCC and leverage have a negative relationship and for return on equity accounts payable turnover and leverage have a negative relationship. The results are inconsistent with (Yousaf, Bris & Haider, 2021) but consistent with (Khalid, Saif, Gondal & Sarfaraz, 2018). Return on asset and return on equity increase by the increase in measures of working capital.…”

Uncovering the hidden roots: the tapestry of working capital efficiency in Indian MSMEs

“…The study of Kindermann et al (2022), Salawu and Alao (2014) and Sharma et al (2020) also used CCE as the proxy for WCME. Accordingly, Yousaf et al (2021) used it as the representation of WCE. Furthermore, Seth et al (2020a) used it in one of the models out of three models developed to measure working capital effectiveness among Indian firms.…”

“…Hence, paying close attention to this area can aid in maintaining liquidity and ensuring timely payments. However, most of the studies on the working capital practices of enterprises have been conducted with larger corporations in mind, leaving smaller businesses with limited ways to receive funds and necessitating the efficient and effective use of their limited funds (Abbadi and Abbadi, 2012; Mutua Mathuva, 2014; Yousaf et al , 2021).…”

Working capital management efficiency: a study of certified firms from the EFQM excellence model

“…On the other hand, some scholars used WC as an independent variable (Thi & Phung, 2021;Rey-Ares et al, 2021;Senan et al, 2021;Farhan et al, 2021;Chauhan, 2021;Fernández-López et al, 2020;Pham et al, 2020;Högerle et al, 2020). Numerous researchers employed components of WC, which are days sales outstanding, cash conversion cycle, days inventory outstanding, and days payable outstanding, to examine the relationship between WCM and firm profitability (Banerjee et al, 2021;Yousaf et al, 2021;Högerle et al, 2020;Goel & Sharma, 2015).…”