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THE EFFECT OF WORKING CAPITAL MANAGEMENT ON FIRM’S

PROFITABILITY:
EVIDENCE FROM SINGAPORE

Ebrahim Mansoori
PhD candidate, School of management,
University Sains Malaysia (USM), 11800 Pulu Penang, Malaysia
Corresponding author

Datin Dr. Joriah Muhammad,

Senior lecturer, School of Management,
University Sains Malaysia (USM), 11800 Pulu Penang, Malaysia

Abstract

The purpose of this research is to investigate the effect of working capital management on firm’s

profitability. Using panel data analysis, pooled OLS and Fixed Effect estimation, for a sample of Singapore firms

from 2004 to 2011, we find that managers can increase profitability by managing working capital efficiently.

Moreover, managers can improve firms’ profitability by shortening receivable conversion period and inventory

conversion period. The analysis is applied at the level of full sample as well as economic sectors. However, the

results of industry analysis suggested the effect of economic sector on relationship between working capital

management and profitability.

Keywords: Working capital management, cash conversion cycle, profitability, Singapore

1. Introduction
Working capital management, which consists of current assets and current liabilities management, is the
main function of financial managers in all corporations. While the working capital management takes up a major
part of executive manager’s attention and time, there is a deserved attention to working capital management in
finance literature. (Jose, Lancaster, & Stevens, 1996; Deloof, 2003; Ŝen & Oruč, 2009). The utmost important
component of working capital related to inventories, accounts receivables and accounts payables (Ross, Westerfield,
& Jaffe, 2002). Financial executives have to make different decisions about the level of these components in order to
the best results. The dynamic nature of short-term business emporium, the daily need to substituting current assets,
and liquidation current liabilities help to clarify the importance of working capital management and financial
executive duties. The direct effect of working capital management on profitability and liquidity position of firms
also refers the importance of working capital management (Nobanee, Abdullatif, & Al Hajjar, 2011). Firms may
face to bankruptcy if they select and use improper working capital strategies, even though they experience positive
profitability.(Śamiloġlo & Demirgũneş, 2008).
Based on risk-return trade off, there are three procedures about working capital management, including
aggressive, conservative, and moderate working capital strategies (weinraub & Visscher, 1998). Aggressive working
capital policy refers to maintain the lower amount of working capital elements, which accompanied with high risk of
liquidity and high return on working capital investment. Conservative working capital management strategy point

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out keeping higher volume of the working capital requirements, which connects with lower liquidity risk and lower
return on working capital investment. Finally, the moderate strategy is between two working capital policies as
mentioned above and explains keeping working capital elements in such volume that accompanied average risk-
return.

2. Working capital management

The main objective of working capital management is to ensure that companies have sufficient cash flow to
continue normal operations in such a way that minimize risk of inability to pay short-term commitment. Moreover,
managers should try to avoid from unnecessary investment in working capital. While, more investment in working
capital may reduce the risk of liquidity, insufficient amount of working capital may cause shortages and problems in
daily operations. However, more investment in working capital means more funds tighed up to business operation
and would increase the opprtunity cost of investment epecially when firms rely on external financing to finance
working capital. Therfore, efficiency of working capital management depends on balances between liquidity and
profitability. (Filbeck, Krueger, & Preece, 2007; Faulkender & Wang, 2006).The profound understanding of the role
of working capital and its effect on firms profitabolity would help managers to look for strategic plans for
management of working capital.
One of the standard performance measures to evaluate how well a firm does managing the working capital
is Cash Conversion Cycle (CCC) that was introduced by Richards and Laughlin (1980). It refers to time-period
between buying raw material, convert to finished goods, sales products, and collect account receivables. Firms with
Shorter cash conversion cycle have fewer investment in working capital and as a result the the cost of financing are
less for these firms. The importance of cash conversion cycle well pointed out by a study that was conducted by
Shin & Soenen (1998). They compared two corporations with the same capital structure, Kmart and Wal-Mart. The
former had a CCC of 61 days and the latter had a CCC of 40 days. The differences of 19 days in cash conversion
cycle made Kmart to face 198.3 million US dollars extra to finance his working capital and faced more financial
constraints. Consequently, shorter cash conversion cycle would increase profitability, and would show the efficiency
of management performance in managing working capital. (Deloof, 2003; Nazir et al., 2009, Zariyawati et al, 2009).
Thus, Cash conversion cycle integrates three components of management efficiency include, production, inventory
management, as well as supply chain management (Moyer, Mcguigan, & Kretlow, 2003)
Exhibit 1 presents the procces of cash concersion cycle. Operation cycle includes both inventory
conversion period and receivables conversion period. The length of operation cycle should be financed by
corporations directly if they buy the raw materials on cash. But majority of corporations have strong tending to use
trade credits to financing some parts of operation cycle and also suppliers are willing to provide financial
intermediary services to corporations. (Niskanen & Niskanen, 2006). Inventory conversion period refers that how
long does it take a firm coverts the raw material to finished goods. This period just available in manufacturing firms
and it can not applied to services or banking sectors. Supply-chain management, economic order quantity, just in
time system and economic production quantity are common techniques to management inventories and managers
can use these tools to shorten the period of inventory conversion. Receivables conversion period is defined as the
time -period between sales products on credit and collecting the cash from the customers. Financial managers should
select and use appropriate credit policies not only to attract clients in a manner that enable firms to compete with
their competitors but also to minimize the financing cost of these credits. Last part of cash conversion cycle
connected to payables deferral period that refers to time-period between buying raw material on credit and paying
cash to suppliers. Although, extending the length of payable deferral period may reduce the length of cash
conversion cycle but it should be consider that more lengthening of deferral payable period may damage the firm’s
reputations (Nobanee et al,. 2011). The shorter the length of the cash conversion cycle means effective working
capital management and indicates the better management performance with regards to the inventory conversion
period, collecting receivables period and short term financing using payables.
This study contributes the body of knowledge by identifying how working capital management affect firm’s
profitability and how managers use working capital strategies to increase the firm’s market value. Moreover, This
study focus on the effect of working capital management on firm’s performance and shed more light to how
managers affect firm’s profitability by managing working capital efficiently. The theoretical contribution of this

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research is to enrich the existing literature by investigate the effect of working capital management on profitability
in Singapore firms as a developed market.

3. Literature Review
The cost of capital and the extent of access to external financing are some yardsticks to decide about the
level of investment and the amount of resources that would engage in the working capital. Kieschnick et al, (2006)
argued that the additional dollar invested in working capital would cause to decrease the value of firms. Moreover,
they showed that the worth of a dollar contributed to net working capital is less than the worth of a dollar from its
financing sources. However, they empirically presented the importance of working capital management in firm
value, while the financing sources of working capital should be considered as an important factor in firm’s
valuation. Deloof (2003) challenged the effect of working capital management on Belgian firm’s profitability. The
empirical results of his study stated that the profitability can increase by reducing the length of the accounts
receivable period and inventory conversion period. However, the results emphasized the importance of management
working capital efficiency to increase profitability. Lazaridis and Tryfonidis (2006) investigated the relationship
between profitability and working capital management in Athens Stock market Exchange (ASE) using a sample of
131 firms for the period from 2001 to 2004. Their findings showed that cash conversion cycle associated with gross
profit margin negativity.
From a different perspective, firm’s size, Teruel & Solano (2007) tried to make inquiries about working
capital management and profitability relationships in Small and Medium size firms (SME). For this purpose, they
collected a panel of 8872 Spanish corporations for the period from 1996 to 2002. Using panel data analysis with
both random effect and fix effect models, they revealed a negative relationship between return on asset and cash
conversion cycle, They argued that small and medium-size firms also can increase their profitability by shortening
cash conversion cycle. Śamiloġlo and Demirgũneş (2008) conducted a study to examine the relationship between
working capital management and profitability. Applying multiple regression analyses over a sample of
manufacturing firms listed in Istanbul stock exchange for the period of 1998-2007, they found that the accounts
receivable cycle, the inventory conversion period have negative impact on profitability, which means the shorter
cycle of these variables cause increasing in profitability.
In Pakistan, the effect of aggressive working capital management procedures on firm’s profitability was
examined by Nazir & Afza (2009). The sample consisted of 204 non-financial firms active in Karachi Stock
Exchange (KSE) over the period from 1998 to 2005. Their findings showed that the rate of aggressiveness in
working capital polices and financing procedures associated negatively with both profitability ratios including return
on assets and Tobin’s q. In addition to, their results revealed that investors give more value to the corporations with
more aggressive policies in managing current liabilities.
Trade-off between working capital management and profitability is a controversial topic. Zariyawati et al,.
(2009) tried to pay attention to the relationship between profitability and working capital management in Bursa
Malaysia. The panel of Malaysian firms over the period from 1996 to 2006 was selected to investigate the
relationship between cash conversion cycle as a working capital proxy and ROA as a profitability ratio. The result of
using Pooled OLS regression indicated a negative relationship between working capital proxy and profitability
which means that managers can increase profitability by decreasing the length of cash conversion period.
Ŝen and Oruč (2009) investigated the efficiency of working capital management and its relationship with
profitability in Istanbul Stock market Exchange (ISE). They used three-month table data have issued by 49
production corporations for the period from 1993 to 2007 over five production sectors, including white goods and
electronic, Cement, food, chemistry and textile. These researchers utilized two models using panel data analysis.
Their results showed that aggressive working capital management which represents by shorter CCC and less current
ratio cause increasing in profitability. In sector's investigation, they revealed that there is a significant similarity
among sectors with regard to the relationship between working capital management and profitability except for the
chemistry sector.
Azhar and Noriza (2010) investigated the effect of working capital management on firm’s performance for
Malaysian firms. The sample involved 172 listed companies from Bursa Malaysia for the period covers five years

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from 2003 to 2007. The result of applying multiply regression analysis showed that managers can increase firm’s
market value and performance by managing working capital effectively.
In Japan, Nobanee & Abdullatif & Al Hajjar (2011) studied the relationship between working capital
management and firm’s profitability on a large cross-section of 2123 Japanese corporations active in the Tokyo
Stock Exchange covered the period from 1990 to 2004. Their results revealed that managers can improve firm’s
performance by managing working capital effectively. Moreover, they recommended that managers should be
careful with regard to the lengthening of payable deferral since it might harm the corporation’s credit reputation and
as a result decrease profitability in the long-run horizon.
In India, Vijay Kumar (2011) examined the relationship between working capital management and firm’s
profitability in automobile industries. The sample consisted of 20 firms for the period covers 13 years from 1996-
2009. The result of this study has shown that there is negative relationship between the length of cash conversion
cycle and firm profitability. His finding approved the recent literature in this area about affecting the profitability by
manager’s performance engaged to working capital management.

4. Research Methods
4.1 Data and Sample selection
The data need for empirical testing of the research hypotheses was collected from DataStream database that
included the secondary data of the financial statement of firms listed in the main board of Singapore stock market
exchange (SGE).The sample was putted up as follows. All active firms over the research period with completed
required data were selected, and firms with incomplete data were excluded from the sample. Because of the specific
nature of firms active in banking and finance, insurance, mutual funds and business services, these firms were
excluded from the sample. To investigate industry effects, the sectors with less than 10 firms eliminate from the
sample. Final sample consisted of 736 firm-year observations that include the observation of 92 firms for the 8 years
from 2004 to 2011. Table 1 presents the sample distribution based on economic sector. The electronic sector is the
major sample with 25 firms while the food sector is the least sector with 15 firms.

4.2 Variables
To examine the relationship between working capital management and corporation’s profitability, the ratio
of Return on Assets (ROA), which calculate as the net income divided by total assets, was used as the dependent
variable. Several recent studies have used ROA as a proxy for firms profitability such as (Teruel & Solano, 2007)
(Nazir & Afza, 2009; Śamiloġlo & Demirgũneş, 2008; Zariyawati, et al., 2009; Azhar & Noriza, 2010;
Vijayakumar, 2011) Cash Conversion Cycle was used as the independent variable that have utilized by several
recent studies as a comprehensive measure for working capital management (Wang, 2002; Deloof, 2003; Lazaridis
& Tryfonidis, 2006; Śamiloġlo & Demirgũneş, 2008; Caballero et al., 2009; Vijayakumar, 2011). The Cash
Conversion Cycle defines as the sum of the Receivables Collection Period (RCP), plus the Inventory Conversion
Period (ICP), minus the Payment Deferral Period (PDP). Receivables collection period is calculated as accounts
receivables/ (sales/365), which refers to the time-period to collect receivable from firm’s customers. Inventory
conversion period is calculated as inventories / (Cost of good sold/365) that represent the time- span, which a firm
should invest cash while firms’ materials are converted into a sale. The payment deferral period is calculated as
accounts payable / (cost of good sold/ 365). This measure represents days payable outstanding.
In addition, firm size (the natural logarithm of total assets), debt ratio (total debt to total assets), sales
growth ([current year sales – previous year sales/ previous year sales]) and GDP rate was included in the regression
analysis. Table 2 presents the summary of data measurement.

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4.3 Descriptive statistics

Table 3 presents the descriptive statistics for all variables, which used in this research. The average return
on assets for whole sample is 2.9 % while the construction and material sector with average 8.58 % have highest
return on assets; the technology hardware sector has lowest return on assets with average – 2.46%. Moreover,
electronic and technology hardware are two sectors that experienced negative return on assets on the average. With
regard to cash conversion cycle , it is appeared that technology hardware sector with average 79 days has lowest
CCC while the construction and material sector with average 181 days has highest length for CCC. The food
producers sector has lowest receivable collection period with average 57 days and electronic sector has highest
receivable collection period with average 136 days. The lowest inventory conversion period is belonged to
technology hardware sector with 73 days on the average and the highest of this period is related to construction and
material sector with average 162 days. In addition to, food producers has lowest payable deferral period with
approximately 45 days on the average while the highest period is belonged to construction and material sector with
96 days averagely. The descriptive statistics for the control variables were demonstrated at table 3.

4.4 Model specification

To investigate the effect of working capital management and firm’s profitability, we conducted four
models. The first model tries to investigate the relationship between cash conversion cycle and return on assets. The
second model investigates relationship between account receivables and firms profitability. Third model is related to
the relationship between inventory conversion period and return on asset. Finally, last model analysis the effect of
payable deferral period on profitability. All the models presented as follows;
Model 1) ROA = β0 + β1 CCC + β2 SIZE + β3 LEV + β4 GROWTH + β5 GDP + €
Model 2) ROA = β0 + β1 RCP + β2 SIZE + β3 LEV + β4 GROWTH + β5 GDP + €
Model 3) ROA = β0 + β1 ICP + β2 SIZE + β3 LEV + β4 GROWTH + β5 GDP + €
Model 4) ROA = β0 + β1 PDP + β2 SIZE + β3 LEV + β4 GROWTH + β5 GDP + €

Where;
ROA is return on assets, CCC is the cash conversion cycle, Size is the firm’s size, Lev is total debt to total
assets, Growth is the firm’s sales growth, GDP is annual growth domestic product, and € id regression residuals.
All equations was estimated by regression analysis as utilized by Deloof (2003), Lazaridis & Tryfonidis (2006), Ŝen
& Oruč (2009). The main differences related to control variables that used in this study. The GDP was introuduced
in the models to control for the effect of macroeconomic conditions, and firm size was applyied to control for the
effect of corporation’s size on profitability. Moreover, Spearman correlation coefficient analysis was used to
present the relationship between working capital management and firm’s profitability.

5. Results
In the first stage, the spearman correlation coefficient between cash conversion cycle and its components,
and firm’s profitability is examined. In the next stage, regression analysis for both pooled sample and five sectors is
applied.

5.1 Correlation analysis

The results of spearman correlation coefficients are presented in the table 4. The satisfactory performance
of managers would increase profitability by reducing the length of cash conversion cycle. In these situations, a
negative relationship between cash conversion cycle and return on assets would be expected. The results indicate a
negative relationship between cash conversion cycle and profitability that support the expectation about working

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capital management and firm’s performance. That is, managers can use working capital strategies to increase
profitability that connects the proper performance of working capital managers to increase market value. Moreover,
the negative relationship between RCP and ICP with ROA also are in line with the literature that indicate longer
receivables period and inventory conversion period means more finance sources engaged in working capital, which
increase opportunities cost of extra financing. The negative relationship between PDP and ROA stem from the fact
that more lengthening the accounts payable period may damage the corporation’s credit reputation and decrease the
firm’s profitability as mentioned by Nobanee et al.( 2011). With regard to control variables, the results reveal a
direct relationship between profitability and three control variables including; firm size, firm growth and gross
domestic products. These results indicate that profitability increase with size of the firms, more growth firms have
more profitability, and economic boom increase corporations profitability. However, it is appeared that increasing in
firms leverage associated to decrease in profitability.

5.2 Regression analysis

Regression analyses are applied to investigate the relationship between working capital management and
profitability. To avoid heteroscedastisity problem, all regression models was estimated using the regression-based
framework Pooled Ordinary Least Squares model (OLS) as used by Gill et al,.(2010), and Raheman & Nasr (2007)
with cross section weight of five industries including electronic, construction and material, technology hardware,
industrial engineering and food producers. In OLS regression, a common intercept is calculated for all variables and
allocated a weight. Models of this study differ by entering the components of cash conversion cycle as independent
variables as well as by using two different control variables involving firm size and gross domestic products. To
apply the pooled OLS regression, the data set is pooled across firms and years for a balanced data set of 736 firm-
year observations. Moreover, the result of Hausman test indicates that we should use fixed effect estimation. The
fixed effects model suppose that the slope coefficient of the regressors does not vary across firms and is constant,
but the intercept varies over time or across firms. Therefore, the changing of the firms intercepts presents the effect
of unobserved explanatory variables. (Hsiao, 2003).
Table 5 presents the regression results for both pooled OLS and Fixed effects estimations. The results of
model 1 show a highly negative relationship between cash conversion cycle and return on assets in both pooled OLS
(P-value- 0.0001 ) and fixed effect estimation (P-value 0.0000). These results imply that managers can increase
firm’s profitability (0.01 % according to OLS and 0.02 % according to fixed effect estimation) by reducing one day
in length of cash conversion cycle. The coefficient of regression in model 2 offers a negative and highly significant
relationship (P-value 0.000) between receivable collection period and return on assets. It means that management
policies with regard to account receivables can serve as a tool to improve corporation’s performance. In Regression
3, we found a strong negative relationship between inventory conversion period and firm’s profitability (P-value
0.0043 & 0.0006) and point out that increasing the length of inventory turnover by one day is accompanied with the
decreasing in return on assets by 0.01 % according to OLS and 0.02 % according to fixed effect estimation.
Moreover, the coefficient of the payable deferral period is negative and significant in both regression modes. The
negative relationship between payable deferral period and corporate profitability may stem from the fact that less
profitable corporations have to wait longer for paying their bills as was mentioned by Deloof, (2003) or from the
fact that more lengthening the number of account payable days may damage firm’s reputations and consequently
firm’s profitability as was mentioned by Nobanee (2011). The results of all regression models in both pooled OLS
and fixed effect estimation suggested that managers can increase firm profitability by decreasing the length of
receivables collection period and inventory conversion period. The OLS regression estimation in all models point
out a strong evidance of a negative relationship between working capital management and returm on assets. The
regression coefficients of control variables in all models are highly significant. Return on assets increases with size
of the firms as measured by natural logarithm of assets in both OLS and fixed effect estimation. In addition, return
on assets increases with GDP rate and firm’s growth. However, a negative and highly significant relationship
between debt ratio and firms profitability is found.

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6. Analysis for economic sectors

Different industries might select and use different working capital strategies. Weinraub & Visscher (1998)
and Filbeck & Krueger (2005) did argued that the industry effect on firms’ working capital policies are not similar,
which might be explained by variation in different trade credits or divergence in investment policies in inventories
across industries. To investigate the effect of cash conversion cycle on firm’s profitability in each industry, the
regression analysis was applied to each industry sector in the sample separately. Table 6 summarizes the result of
regression analysis between cash conversion cycle and return on assets for each industry. The results of both models,
OLS and fixed effects estimation, indicate the effect of industry on relationship between cash conversion cycle and
profitability. According to the OLS model, the results show a negative relationship between cash conversion cycle
and firms profitability in all sectors. Although the relationship between cash conversion cycle and return on assets
was significant in construction and material, and electronic sectors but there were no significant relationship
between cash conversion cycle and return on assets for the rest sectors (food producers, industrial engineering, and
technology hardware). With regard to control variables, the debt ratio significantly and negatively has correlated to
the return on assets in all sectors based on OLS regression. Moreover, there is a positive and significant relationship
between Sales Growth (SG) and CCC in all sectors except technology hardware sector, which was not significant
(P-vale 0.1656). The results also reveal that firm size positively correlated to the ROA in all sectors that means
larger firms relatively have greater returns. Finally, OLS regression point out a positive and significant relationship
between gross domestic products and return on assets in industrial engineering, and technology hardware sectors.
Moreover, the results of the fixed effect estimation show that there is a significant negative relationship
between working capital management and profitability in electronic (at 5% level), industrial engineering (at 1%
level), and technology hardware (at 10% level) sectors. We did not find a significant relationship between cash
conversion cycle and profitability in construction and material (P-value, 0.9333), and food producers (P-value,
0.8325) sectors. In all sectors, a significant and negative relationship between debt ratio and profitability, and a
significant and positive relationship between cash conversion cycle and return on investment was found. In addition,
the gross domestic product has positive relationship on profitability in all sectors, while this relationship was not
statistical significant in construction and material sector (P-value, 0.3120).

7. Conclusions
Working capital management is important because it affects both profitability and liquidity, and
consequently firm’s value. Management performance would be improved by managing working capital efficiently.
Applying panel data analysis including pooled OLS regression and fixed effect estimation we find that cash
conversion cycle negatively associated to the Return on Assets (ROA). These results show that managers can
improve their performance by managing working capital efficiently. All the components of cash conversion cycle
(receivable conversion period, inventory conversion period, and payable deferral period) have negative relationship
with profitability. These results demonstrate that firm’s profitability is increased by decreasing in receivable
conversion period and inventory conversion period. The negative relationship between payable conversion period
and profitability might stem from the fact that more lengthening of payable deferral period would damage firm’s
reputation, and consequently decrease profitability.
The results of industry analysis suggested the effect of economic sector on relationship between working
capital management and profitability. According to OLS regression, we find a negative and significant relationship
between cash conversion cycle and return on assets in construction and material, and electronic sectors. In addition,
based on fixed effect estimation, the negative and significant relationship between cash conversion cycle and return
on assets was found in electronic, industrial engineering, and technology hardware sectors. These results indicate
that industries would affect the relationship between profitability, and working capital management.
Several policy implications would be derived from the findings of the study. First, managers would improve their
performance, and increase firm profitability by shortening cash conversion cycle. Second, shortening receivable
conversion period, and inventory conversion period would result in increasing firm profitability. Third, more
shortening in payable conversion period would decrease firm profitability. Finally, the relationship between working
capital management and profitability would be affected by industry differences.

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One of the limitations of the study is related to the period of the study between 2004 -2011. We could not
collect the data for 2012 year. Moreover, we could not investigate other industries because of incomplete data.
Similar studies in other countries with different financial systems are suggested as future researches to
investigate the relationship between working capital management and profitability. However, different proxies for
working capital management, and different proxies for profitability can investigate by future researchers.

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weinraub, H., & Visscher, S. (1998). Industry Practic Relating to Aggressive Conservative Working capital Policies.
journal of Financial and strategic Decisions , 11 (2), 11-18.
Zariyawati, M., Annuar, M., Taufiq, H., & Abdul Rahim, A. (2009). Working capital management and corporate
performance: Case of Malaysia. Journal of Modern Accounting and Auditing , 5 (11), 47-54.

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Annexure
Exhibit 1 Cash Conversion Cycle procces

Source: Richards & Laughlin, (1980)

Table 1 Sample distribution for year 2004-2011

Economic sector Number of firms
Electronic (EL) 25
Construction & Material (CO & M) 19
Technology hardware (TH) 17
Industrial engineering (IE) 16
Food producers (FP) 15
Total 92
Table 2 summary of data measurement
Variables calculation symbol
Return on assets Net income/ total assets ROA
Receivables collection period Accounts receivables/ (sales/365) RCP
Inventory conversion period Inventories / (Cost of goods sold/365) ICP
Payable deferral period Accounts payable / (cost of goods sold/ 365) PDP
Cash conversion cycle RCP + ICP – PDP CCC
Firm size The natural logarithm of total assets SIZE
Leverage (Debts ratio) Total debts / total assets LEV
Sales growth (current year sales – previous year sales)/ previous year sales GROWTH
Gross domestic product Gross domestic product GDP

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Table 3 Eight years means and standard deviation for the variables
Economic Sectors
Variables All EL CO TH IE FP

Mean 0.029887 -0.0052 0.0858 -0.0246 0.0443 0.0639

ROA
Std.Dev 0.55334 0.2097 1.1628 0.2399 0.0974 0.1253

Mean 79.37065 82.6245 96.1464 87.2487 78.2922 44.9201

PDP
Std.Dev 72.51898 50.2595 94.3417 104.0457 47.6213 24.8322

Mean 103.2405 136.0950 115.4342 92.9191 91.2813 57.4917

RCP
Std.Dev 105.6709 177.3756 79.9924 43.3003 29.4048 28.2129

Mean 134.209 149.8028 181.5660 79.1395 126.5493 118.8161

CCC
Std.Dev 204.0092 249.6902 289.5519 104.8429 124.8862 101.3084

Mean 0.247016 0.2192 0.4736 0.1681 0.1749 0.1726

LEV
Std.Dev 1.125977 0.2127 2.4474 0.1500 0.1132 0.1730

Mean 0.0545 0.0545 0.0545 0.0545 0.0545 0.0545

GDP
Std.Dev 0.0350 0.0350 0.0351 0.0351 0.0351 0.0351

Mean 110.3391 96.3323 162.2782 73.4691 113.5602 106.2445

ICP
Std.Dev. 165.6501 120.7889 285.1430 54.2201 146.3696 101.7681

Mean 11.97915 11.6629 12.1033 11.8376 11.5868 12.9279

SIZE
Std.Dev 1.396946 1.3608 1.4468 1.2734 0.9583 1.4822

Mean 1.196954 0.2280 0.1278 0.1274 0.1698 6.4740

GROWTH
Std.Dev 25.99522 2.3522 0.6408 0.5946 0.3927 64.2640

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Table 4 profitability and Spearman correlation coefficients

Variables ROA APD ARD CCC DBT GDP ICP LNA SG
1.0000
ROA
-----
-0.1190 1.0000
PDP
(0.0012) -----
-0.2867 0.3806 1.0000
RCP
(0.0000) (0.0000) -----
-0.1507 -0.1796 0.4155 1.0000
CCC
(0.0000) (0.0000) (0.0000) -----
-0.1459 0.0232 0.0052 0.1160 1.0000
LEV
(0.0001) (0.5294) (0.8887) (0.0016) -----
0.1554 0.0430 -0.0447 -0.0894 0.0645 1.0000
GDP
(0.0000) (0.2439) (0.2258) (0.0153) (0.0805) -----
-0.0906 0.1229 0.1533 0.7312 0.1832 -0.0425 1.0000
ICD
(0.0139) (0.0008) (0.0000) (0.0000) (0.0000) (0.2492) -----
0.2318 -0.1294 -0.2710 -0.1191 0.1890 0.0038 -0.0920 1.0000
SIZE
(0.0000) (0.0004) (0.0000) (0.0012) (0.0000) (0.9182) (0.0126) -----
0.2997 -0.1085 -0.1884 -0.1080 0.0188 0.0491 -0.0535 0.2139 1.0000
GROWTH
(0.0000) (0.003)2 (0.0000) (0.0033) (0.6115) (0.1837) (0.1470) (0.0000) -----
The p-value is given in parentheses

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Table 5 Regression for profitability on working capital management

Pooled OLS Fixed effect estimation
Model 1 Model 2 Model 3 Model 4 Model 1 Model 2 Model 3 Model 4
LEV -0.0943 -0.0924 -0.0909 -0.0947 -0.2331 -0.2651 -0.2024 -0.2082
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
GROWTH 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002
(0.0170) (0.0182) (0.02060 (0.0211) (0.0000) (0.0000) (0.0000) (0.0000)
SIZE 0.0146 0.0142 0.0161 0.0167 0.0377 0.0362 0.0436 0.0457
(0.0000) (0.0000) (0.0000) (0.0000) (0.0019) (0.0005) (0.0000) (0.0000)
GDP 0.4547 0.4249 0.4703 0.4776 0.5771 0.5441 0.5893 0.5876
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
CCC -0.0001 -0.0002
(0.0001) (0.0000)
RCP -0.0003 -0.0005
(0.0000) (0.0000)
ICP -0.0001 -0.0002
(0.0043) (0.0006)
PDP -0.0002 -0.0002
(0.0046) (0.0157)
R-squared 0.2008 0.2181 0.2004 0.1916 0.5192 0.5690 0.5215 0.5447
Adjusted R-squared 0.1909 0.2084 0.1905 0.1816 0.4469 0.5042 0.4496 0.4763
The p-value (robust for heteroscedasticity) is given in parentheses

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Table 6 Regression for profitability on each industry

Economic
CCC Debt SG Size GDP R Adj.R
Sector
OLS -0.0001 -0.0201 0.0458 0.0031 0.3000 0.2599 0.2398
CO & M (0.0000) (0.0000) (0.0062) (0.0250) (0.2913)
Fixed Effect 0.0000 -0.1609 0.0453 0.0515 0.2041 0.3338 0.2141
(0.9333) (0.0610) (0.0059) (0.0599) (0.3120)
OLS -0.0004 -0.3228 0.0026 0.0071 0.7408 0.2785 0.2637
EL (0.0000) (0.0000) (0.6374) (0.0035) (0.0432)
Fixed Effect -0.0001 -0.3327 0.0032 0.2738 0.6773 0.6478 0.5877
(0.0242) (0.0002) (0.0755) (0.0001) (0.0133)
OLS 0.0000 -0.1127 0.0003 0.0065 0.0370 0.1302 0.1000
FP (0.6963) (0.0104) (0.0026) (0.0000) (0.7693)
Fixed Effect 0.0000 -0.0559 0.0003 0.0150 0.1835 0.7766 0.7342
(0.8325) (0.1840) (0.0133) (0.0474) (0.0297)
OLS -0.0001 -0.0154 0.0252 0.0046 0.1647 0.1315 0.1032
IE (0.2888) (0.7566) (0.0700) (0.0000) (0.2276)
Fixed Effect -0.0002 -0.2501 0.0124 0.0691 0.4143 0.6098 0.5369
(0.0030) (0.0002) (0.3375) (0.0000) (0.0003)
OLS -0.0001 -0.2353 0.0333 0.0006 1.0657 0.2358 0.2125
TH (0.6106) (0.0012) (0.1656) (0.7525) (0.0000)
Fixed Effect -0.0001 -0.5831 -0.0178 0.1342 1.2087 0.6048 0.5320
(0.0590) (0.0000) (0.5300) (0.0004) (0.0000)
The p-value (robust for heteroscedasticity) is given in parentheses

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