You are here

The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from Borsa Istanbul

Journal Name:

Publication Year:

Author NameUniversity of AuthorFaculty of Author
Abstract (2. Language): 
An efficient working capital management is expected to enhance the value creation for the firms’ owners. This study aims to provide empirical evidence for the relationship between working capital management and profitability of a sample of 110 manufacturing firms listed on Borsa Istanbul during the period of 2005-2014. Accordingly, the impact of working capital management on the firm’s profitability is tested by using panel data methodology. Cash converison cycle which is used as a comprehensive measure for working capital management is found to have a significant and negative impact on firms’ profitability suggesting that a firm may increase its profitability through minimizing its cash conversion period. In addition, the major findings of the study with respect to the individual components of working capital management reveal that while average collection period and days of inventory outstanding have a significant negative relationship with profitability, average payment period has a significant positive relation. The evidence implies that firms may improve their profitability through efficient working capital management regarding the accounts receivable, inventory and accounts payable policies.
63
79

JEL Codes:

REFERENCES

References: 

Akoto, R.K., Vitor, D.A. and Angmor, P.L. (2013), ‘Working Capital
Management and Profitability Evidence from Ghanainan Listed
Manufacturing Firms’, Journal of Economics and International
Finance, Vol.5, No.9, pp.373-379.
Arunkumar, O. N. and Radharamanan, T. (2011), ‘Analysis of Effects of
Working Capital Management on Corporate Profitability of Indian
M. ÖNER
77 Siyaset, Ekonomi ve Yönetim Araştırmaları Dergisi,2016, yıl: 4, cilt: 4, sayı: 3
Manufacturing Firms’, International Journal of Business Insights &
Transformation, Oct2011-Mar2012, Vol.5, No.1, p.71-76.
Baltagi, B.H. (2001), Econometric Analysis of Panel Dat,. 2nd edition, John
Wiley and Sons Ltd., England.
Blinder, A.S. and Maccini, L.J. (1991), ‘the Resurgence of Inventory
Research: What Have We Learned?’, Journal of Economic Survey,
Vol. 5, No.4, pp.291-328.
Caballero, S.B., Garcia-Teruel, P.J. and Martinez-Solano, P. (2012), ‘How
does Working Capital Management affect the Profitability of
Spabish SMEs?’, small business Economics, Vol.39, pp.517-529.
Coşkun, E. and Kök, D. (2011), ‘Effect of Working Capital Policies on
Profitability: A Dynamic Panel Analysis’, EgeAcademic Review,
Vol. 11, pp.75-85.
Çakır, H. M. (2013), ‘Nakit Döngüsünün Firma KârlılığınaEtkisinin Sektörel
Analizi’, Journal of Yaşar University, Vol.30, No.8, pp.4948-4965.
Deloof, M. (2003), ‘Does Working Capital Management Affect Profitability
of Belgian Firms?’, Journal of Business Finance and Accounting,
Vol. 30, No. 3&4, pp.573-587.
Eljelly, A.M.A. (2004), ‘Liquidity-Profitability Tradeoff: An Empirical
Investigation in an Emerging Market’, International Journal of
Commerce and Management, Vol. 14, No.2, pp. 48-61.
Enqvist, J., Graham, M. and Nikkinen, J. (2014), ‘The Impact of Working
Capital Management on Firm Profitability in Different Business
Cycles: Evidence from Finland’, Research in International Business
and Finance, Vol.32, pp.36-49.
Etiennot, H.,Preve, L.A. and Sarria-Allende, V. (2012), ‘Working Capital
Management: An Exploratory Study’, Journal of Applied Finance,
Vol.22, No.1, pp.161-174.
Falope, O.I. and Ajilore, OvT.(2009), ‘Working Capital Management and
Corporate Profitability: Evidence from panel Data analysis of
Selected Companies in Nigeria’, Research Journal of Business
Management, Vol.3, No.3, pp.73-84.
Filbeck, G. and Krueger, T. M. (2005), ‘An Analysis of Working Capital
Management Results Across Industries’, Mid-American Journal of
Business, Vol. 20, No. 2, pp. 11-18.
Garcia-Teruel, P.J. and Martinez-Solano, J. (2007), ‘Effects of Working
Capital Management on SME Profitability’, International Journal of
Managerial Finance, Vol.3, No.2, pp. 164-177.
The Impact of Working Capital Management on Firm Profitability: Empirical …
78 Research Journal of Politics, Economics and Management, 2016, Year:4, Volume:4, Issue:3
Gill, A., Biger, N. and Mathur, N. (2010), ‘The Relationship Between
Working Capital Management and Profitability: Evidence From The
United States’, Business and Economics Journal, Vol. 10, pp.1-9.
Gitman, L.J. (1974), ‘Estimating Corporate Liquidity Requirements: a
Simplified Approach’, The Financial Review, Vol.9, pp.79-88.
Gujarati, D. (2003). Basic Econometrics. Fourth Edition. New York.
McGraw-Hill.
Haris, M. and A. Raviv. (1991) The Theory of Capital Structure. The Journal
of Finance. Vol.46, No.1, pp.297-355.
Jose, M. L., Lancaster, C. and Stevens, J. L. (1996), ‘Corporate Returns and
Cash conversion Cycles’, Journal of Economics and Finance, Vol.
10, No. 1, pp.33-46.
Karadaglı, E.C. (2012), ‘The effect of Working capital Management on the
Profitability of Turkish SMEs’, British Journal of Economics,
Finance and Management Sciences, Vol.5, No.2, pp.36-44.
Khanqah, V.T., Khosroshahi, M.A. and Ebrati, M.R. (2012), ‘An
Investigation of the Association between Working Capital
Management and Corporate Performance’, International Journal of
Management and Business Research, Vol.2, No.3, pp.203-218.
Lazaridis, I. and Tryfonidis, D. (2006), ‘Relationship Between Working
Capital Management and Profitability of listed companies in the
Athens Stock Exchange’, Journal of Financial Management and
Analysis, Vol.19, No.1, pp.26-35.
Long, M.S., Malitz, I.B. and Ravid, S.A. (1993), ‘Trade credit, Quality
Guarantees, and Product Marketability’, Financial Management,
Vol.22, No.4, pp.117-127.
Malik, M. S. and Bukhari, M. (2014), ‘ The Impact of Working Capital
Management on Corporate Performance: A Study of Firms in
Cement, Chemical and Engineering Sectors of Pakistan’, Pakistan
Journal of Commerce and Social Sciences, Vol.8, No.1, pp.134-148.
Myers, S. C. and N. S. Majluf. (1984). Corporate Financing and Investment
Decisions When Firms Have Information That Investors Do Not
Have. Journal of Financial Economics. Vol.13 No.2, pp.187-222.
Nazir, M.S. and Afza, T. (2009), ‘A panel Data Analysis of Working Capital
Management Policies’, Business Review, Vol.4, No.1, pp.143-157.
Padachi, K. (2006), ‘Trends in Working Capital Management and its Impact
on Firms’ Performance: An Analysis of Mauritian Small
Manaufacturing Firms’, International Review of Business Research
Papers, Vol.2, No.2, pp.45-58.
M. ÖNER
79 Siyaset, Ekonomi ve Yönetim Araştırmaları Dergisi,2016, yıl: 4, cilt: 4, sayı: 3
Raheman, A. and Nasr, M. (2007), ‘Working Capital Management and
Profitability – Case of Pakistani Firms’, International Review of
Business Research Papers, Vol.3, No.1, pp.279-300.
Richards, V. D. and Laughlin, E. J. (1980), ‘A Cash Conversion Cycle
Approach to Liquidity Analysis’, Financial Management, Vol. 9,
No. 1 (Spring), pp. 32-38.
Shin, H. H. and Soenen, L. (1998), ‘’Efficiency of Working Capital and
Corporate Profitability’, Financial Practice and Education, Vol.8,
No.2, pp. 37-45.
Smith, K. V. (1973), ‘State of the Art of Working Capital Management’,
Financial Management, Autumn, pp.50-55.
Smith, K. (1980), ‘Profitability versus Liquidity Tradeoffs in Working
Capital Management’ in K. V. Smith (ed.), Radings on the
Management of Working Capital, St. Paul, MN, West Publishing
Company, USA, pp. 549-562.
Türkiye Cumhuriyeti Merkez Bankası İstatistik Genel Müdürlüğü, ‘Sektör
Bilançoları Değerlendirme Raporu’, (2011-2013).
Ukaegbu, B. (2014), ‘The Significance of Working Capital Management in
Determining Firm Profitability: Evidence from Developing
Economies in Africa’, Research in International Business and
Finance’, Vol. 31, pp.1-16.
Verbeek, M. (2004), A Guide to Modern Econometrics, 2nd edition, John
Wiley and Sons Ltd., England.
Vural, G., Sökmen, A.G. and Çetenak, E. H. (2012), ‘Affects of Working
Capital Management on Firm’s Performance: Evidence from
Turkey’, International Journal of Economics and Financial Issues,
Vol. 2, No. 4, pp.488-495.
Wang, Y.J. (2002), ‘Liquidity Management, Operating Performance, and
Corporate Value: Evidence from Japan and Taiwan’, Journal of
Multinational Financial Management, Vol.12, pp.159–169.
Wooldridge, J. M. (2003), Introductory Econometrics, 2nd edition,
Thomson South-Western, United States of America.

Thank you for copying data from http://www.arastirmax.com