Working capital management and profitability: evidence from Indonesian manufacturing companies

Irfan Aryawan; Astiwi Indriani

doi:10.14710/dijb.3.1.2020.36-46

DOI: https://doi.org/10.14710/dijb.3.1.2020.36-46

Working capital management and profitability: evidence from Indonesian manufacturing companies

Irfan Aryawan, Astiwi Indriani

Universitas Diponegoro, Indonesia

Citation Format:

Abstract

The aims of this study is to analyze the relationship between working capital management and profitability (return on assets) as a dependent variable and cash conversion cycle (CCC), inventory conversion period (ICP), average collection period (ACP) and average payment period (APP) as independent variables with leverage, liquidity, and size as the controlling variables. The sample of this study are manufacturing companies in the Indonesian Stock Exchange 2013-2017. The analysis using OLS showed that the ACP has a negative and significant effect on ROA and the APP has a positive and significant effect on ROA, meanwhile CCC and ICP has a negative and insignificant effect on ROA.

Fulltext View|Download

Keywords: return on assets (ROA); cash conversion cycle (CCC); inventory conversion period (ICP); average collection period (ACP); average payment period (APP)

Article Metrics:

Article Info

Section: Articles

Language : EN

In Vol 3, No 1 (2020)

Recent articles

Front matter Back matter The effect of competitive intelligence on competitive strategy and performance: study on cafes and restaurants in Malang, Indonesia Biological assets as mudharabah-based loan collateral for smallholder farmers in Indonesia: a feasibility study The effect of stock prices, return on assets, and firm size on dividend payout ratio: evidence from Indonesian financial service companies More recent articles

Alipour, M. (2011). Working Capital Management and Corporate Profitability: Evidence from Iran. 12(7), 1093–1099
Bagh, T., Nazir, M. I., Khan, M. A., Khan, M. A., & Razzaq, S. (2016). The impact of Working Capital Management on Firm’s Financial Performance: Evidence from Pakistan. International Journal of Economics and Financial Issues, 6(3), 1097–1105
Ghozali, I. (2018). Aplikasi Analisis Multivariate Dengan Program IBM SPSS 25 (9th ed.). Semarang: Badan Penerbit Undip
Jakpar, S., Tinggi, M., Johari, A., Siang, T., Myint, K., & Sadique, M. (2017). Working Capital Management and Profitability: Evidence from Manufacturing Sector in Malaysia. Journal of Business & Financial Affairs, 06(02). https://doi.org/10.4172/2167-0234.1000255
Kasozi, J. (2017). The effect of working capital management on profitability: a case of listed manufacturing firms in South Africa. Investment management and financial innovations, 14(2), 336-346
Makori, D. M., & Jagongo, A. (2013). Working Capital Management and Firm Profitability: Empirical Evidence from Manufacturing and Construction Firms Listed on Nairobi Securities Exchange, Kenya. International Journal of Accounting and Taxation, 1(1). https://doi.org/10.15640/ijat
Mansoori, E., & Muhammad, J. (2012). The Effect of Working Capital Management on Firm’s Profitability: Evidence from Singapore. 472–486
Mogaka, D., & Jagongo, A. (2013). Working Capital Management and Firm Profitability. International Journal of Accounting and Taxation
Myers, S. C., & Majluf, N. S. (1984). Brealey, Richard A., Stewart C. Myers, and Franklin Allen. Principles of Corporate Finance. New York: McGraw-Hill/Irwin, 2011. Print., 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
Ponsian, N., Chrispina, K., Tago, G., & Mkiibi, H. (2014). The Effect of Working Capital Management on Profitability. International Journal of Economics, Finance and Management Sciences, 2(6), 347. https://doi.org/10.11648/j.ijefm.20140206.17
Richards, V. D., & Laughlin, E. J. (2012). to Cycle Approach Liquidity Analysis. 9(1), 32–38
Şamiloğlu, F., & Akgün, A. İ. A. (2016). The Relationship between Working Capital Management and Profitability. The Relationship between Working Capital Management and Profitability: Evidence from Turkey, 7(2), 1–14. https://doi.org/10.20409/berj.2016217492
Shah, B., Gujar, M. A., & Sohu, N., U. (2018). The Impact of Working Capital Management and Profitability: Case Study of Pharmaceutical and Chemical Firms Listed on Karachi Stock Exchange Email address: International Journal of Economics, Commerce and Management, 6(3), 200–220
Sharma, A. K., & Kumar, S. (2011). Effect of working capital management on firm profitability: Empirical evidence from India. Global Business Review. https://doi.org/10.1177/097215091001200110
Vural, G., Sokmen, A. G., & Cetenak, E. H. (2012). Affects of Working Capital Management on Firm’ s Performance: Evidence from Turkey. 2(4), 488–495
Yakubu, I. N., Alhassan, M. M., & Fuseini, A. A. (2017). The impact of working capital management on corporate performance: Evidence from listed non-financial firms in Ghana

Last update:

No citation recorded.

Last update:

No citation recorded.

Author(s) Rights

In order for Diponegoro International Journal of Business (DIJB) to publish and disseminate research articles, we need publishing rights (transferred from author(s) to publisher). This is determined by a publishing agreement between the author(s) and DIJB. This agreement deals with the transfer or license of the copyright of publishing to DIJB, while authors still retain significant rights to use and share their own published articles. DIJB supports the need for authors to share, disseminate and maximize the impact of their research and these rights, in any databases.

As an author, you have rights to a large range of uses of your article, including use by your employing institute or company. These Author rights can be exercised without the need to obtain specific permission. Authors publishing in DIJB has wide rights to use their works for teaching and scholarly purposes without needing to seek permission, including:

use for classroom teaching by Author or Author's institution and presentation at a meeting or conference and distributing copies to attendees;
use for internal training by the author's company;
distribution to colleagues for their research use;
use in a subsequent compilation of the author's works;
inclusion in a thesis or dissertation;
reuse of portions or extracts from the article in other works (with full acknowledgement of final article);
preparation of derivative works (other than commercial purposes) (with full acknowledgement of final article);
voluntary posting on open web sites operated by author or author’s institution for scholarly purposes,

(but it should follow the open-access license of Creative Common CC-by-SA License).

Authors/readers/third parties can copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, even commercially, but they must give appropriate credit (the name of the creator and attribution parties (authors detail information), a copyright notice, an open-access license notice, a disclaimer notice, and a link to the material) and provide a link to the license.

Authors/readers/third parties can read, print and download, redistribute or republish the article (e.g. display in a repository), translate the article, download for text and data mining purposes, re-use portions or extracts from the article in other works, sell or re-use for commercial purposes, remix, transform, or build upon the material, they must distribute their contributions under the same license as the original Creative Commons Attribution-ShareAlike (CC BY-SA).

Copyright Transfer Agreement for Publishing (Publishing Right)

The authors submitting a manuscript do so on the understanding that if accepted for publication, the copyright for publishing (publishing right) of the article shall be assigned/transferred to the Department of Management, Faculty of Economics and Business, Universitas Diponegoro as the publisher of DIJB.

Upon acceptance of an article, authors will be asked to complete a 'Copyright Transfer Agreement for Publishing (CTAP)'. An e-mail will be sent to the Corresponding Author confirming receipt of the manuscript together with a CTAP form by the online version of this agreement.

DIJB, the publisher, and the editorial board make every effort to ensure that no wrong or misleading data, opinions or statements be published in the journal. In any way, the contents of the articles and advertisements published in DIJB are sole and exclusive responsibility of their respective authors and advertisers.

Remember, even though we ask for a transfer of copyright for publishing (CTAP), our journal Author(s) retain (or are granted back) significant scholarly rights as mentioned before.

The Copyright Transfer Agreement for Publishing (CTAP) Form can be downloaded here