Browse > Article
http://dx.doi.org/10.13106/jafeb.2020.vol7.no3.115

Impact of Working Capital Management on Firm's Profitability: Empirical Evidence from Vietnam  

NGUYEN, Anh Huu (School of Accounting and Auditing, National Economics University)
PHAM, Huong Thanh (School of Accounting and Auditing, National Economics University)
NGUYEN, Hang Thu (School of Accounting and Auditing, National Economics University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.3, 2020 , pp. 115-125 More about this Journal
Abstract
This paper investigates the impact of working capital management on the firm's profitability. The research sample includes 119 non-financial listed companies on Vietnam stock market over a period of 9 years from 2010 to 2018. Two statistical approaches include Ordinary least squares (OLS) and fixed effects model (FEM) are employed to address econometric issues and to improve the accuracy of the regression coefficients. The empirical results show the negative and significant impacts of the working capital management, which measured by cash conversion cycle (CCC) and three components of the CCC including accounts receivable turnover in days (ARD), inventory turnover in days (INVD), and accounts payable turnover in days (APD) on the firm's profitability measured by return on assets (ROA) and Tobin's Q. It implies that firms can increase profitability by keeping the optimization of the working capital management measured by the CCC, which includes shortening the time to collect money from clients, accelerating inventory flow and hold the low payment time to creditors. Besides, the profitability of firms was impacted by the sale growth rate, firm size, leverage, and age. Therefore, this paper provides a new insight to managers on how to improve the firm's profitability with working capital management.
Keywords
Working Capital; Firm's Profitability; Stock Market; Cash Conversion Cycle; Listed Companies; Vietnam;
Citations & Related Records
Times Cited By KSCI : 4  (Citation Analysis)
연도 인용수 순위
1 Deloof, M., (2003). Does working capital management affects profitability of Belgian firms? Journal of Business Finance & Accounting, 30(3-4), 573-587.   DOI
2 Enqvist, J., Graham, M., & Nikkinen, J. (2014). The impact of working capital management on firm profitability in different bussiness cycles: evidence from Finland. Research in International Bussiness and Finance, 32(C), 36-49. https://doi.org/10.1016/j.ribaf.2014.03.005   DOI
3 Gul, S., Khan, M. B., Rehman, S. U., Khan, M. T., Khan, M., & Khan, W. (2013). Working capital management and performance of SME sector. European Journal of Business and Management, 5(1), 60-68.
4 Guthmann, H. G., & Dougall, H. E. (1948). Corporate Financial Policy (2nd ed.). New York, NY: Prentice-Hall, Inc.
5 Horward, B. B., & Upton, M. (1953). Introduction to Business Finance (1st ed.). New York, NY: McGraw Hill.
6 Lazaridis, J., & Tryfonidis, D. (2006). Relationship between working capital management and profitability of listed companies in the Athens Stock Exchange. Journal of Finance Management Analysis, 19(1), 26-35.
7 Mohamad, N. E. A. B., & Saad, N. B. M., (2010). Working capital management: the effect of market valuation and profitability in Malaysia. Internal Journal of Bussiness and Management, 5(11), 140-147. DOI:10.5539/ijbm.v5n11p140
8 Muhammad, H., Rehman, A. U., & Waqas, M. (2016). The relationship between working capital management and profitability: a case study of tobacco industry of Pakistan. Journal of Asian Finance, Economics and Bussiness, 3(2), 13-20. https://doi.org/10.13106/jafeb.2016.vol3.no2.13.   DOI
9 Nguyen, P. A., Nguyen, A. H., & Nguyen, P. V. (2019). The relationship between productivity and firm's performance: evidence from listed firms in Vietnam stock exchange. Journal of Asian Finance, Economics and Bussiness, 6(3), 131-140. https://doi.org/10.13106/jafeb.2019.vol6.no3.131   DOI
10 Rahman, M. M., & Saima, F. N. (2018). Efficiency of board composition on firm performance: empirical evidence from listed manufacturing firms of Bangladesh. Journal of Asian Finance, Economics and Bussiness, 5(2), 53-61. https://doi.org/10.13106/jafeb.2018.vol5.no2.53   DOI
11 Ricci, C., & Vito, N. D. (2000). International working capital practices in the UK. European Financial Management, 6(1), 69-84. https://doi.org/10.1111/1468-036X.00112   DOI
12 Richards, V. D., & Laughlin, E. J. (1980). A cash conversion cycle approach to liquidity analysis. Financial Management, 9(1), 32-38. DOI: 10.2307/3665310   DOI
13 Sharma, A., & Kumar, S. (2011). Effect of working capital management on firm profitability: empirical evidence from India. Global Business Review, 12(1), 159-173.   DOI
14 Shin, H. H., & Soenen, L. (1998). Efficiency of working capital management and corpo-rate profitability. Financial Practice and Education, 8(2), 37-45.
15 Taleb, G. A., Zoued, A. N., & Shubiri, F. N. (2010). The determinants of effective working capital management policy: a case study on Jordan. Interdisciplinary Journal of Contemporary Research in Business, 2(4), 248-264.
16 Tu, T. K. T., & Nguyen, T. U. U. (2014). The relatioship between the worrking capital management and the profitability: experimental evidence in Vietnam. Journal of Development and Integration, 14(24), 62-70.
17 Bui, N. T., (2016). The effect of working capital management on the return on assets of Vietnamese real estate companies. Can Tho University Journal of Science, 44(1), 18-27.   DOI
18 Van Horne, J. C. (2008). Fundamentals of Financial Management (13th ed). Upper Saddle River, NJ: Prentice Hall
19 Vural, G., Sokmen, A. G., & Cetenak, E. H. (2012). Affects of working capital management on firm's performance: evidence from Turkey. International Journal of Economics and Financial Issues, 2(4), 488-495.
20 Banos-Caballero, S., Garcia-Teruel, P. J., & Martinez-Solano, P. (2014). Working capital management, corporate performance and financial constraints. Journal of Business Research, 67(3), 332-338.   DOI