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

Year 2016, Volume: 4 Issue: 3, 63 - 79, 01.07.2016

Mehtap Öner

Abstract

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

Abstract

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

Keywords

Working capital management, cash conversion cycle, profitability, panel data

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