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Working capital management and firm profitability: a meta-analysis

Working capital management and firm profitability: a meta-analysis PurposeThe purpose of this study is to quantitatively aggregate the findings of prior literature on the effect of working capital management (WCM) on corporate profitability using the meta-analysis technique developed by Hunter et al. (1982).Design/methodology/approachA set of 46 research articles that directly studied the relationship between WCM, and profitability was analyzed for the purpose. In addition to overall meta-analysis, a detailed subgroup study was also conducted to test whether the differences in results are due to moderating effects related to different profitability proxies, economic development of a specific country and size of the firms under study.FindingsThe findings of this meta-analysis confirm that WCM is negatively associated with profitability, which means an aggressive WCM policy leads to higher profitability. Overall, and in all the subgroup studies, the cash conversion cycle was found to be negatively associated with profitability.Originality/valueUnlike narrative literature review papers, this meta-analysis provides quantitatively aggregate evidence on the relationship of WCM and firms’ profitability. To the best of authors’ knowledge, no previous meta-analysis paper is published on the topic. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Qualitative Research in Financial Markets Emerald Publishing

Working capital management and firm profitability: a meta-analysis

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References (65)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1755-4179
DOI
10.1108/QRFM-06-2016-0018
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this study is to quantitatively aggregate the findings of prior literature on the effect of working capital management (WCM) on corporate profitability using the meta-analysis technique developed by Hunter et al. (1982).Design/methodology/approachA set of 46 research articles that directly studied the relationship between WCM, and profitability was analyzed for the purpose. In addition to overall meta-analysis, a detailed subgroup study was also conducted to test whether the differences in results are due to moderating effects related to different profitability proxies, economic development of a specific country and size of the firms under study.FindingsThe findings of this meta-analysis confirm that WCM is negatively associated with profitability, which means an aggressive WCM policy leads to higher profitability. Overall, and in all the subgroup studies, the cash conversion cycle was found to be negatively associated with profitability.Originality/valueUnlike narrative literature review papers, this meta-analysis provides quantitatively aggregate evidence on the relationship of WCM and firms’ profitability. To the best of authors’ knowledge, no previous meta-analysis paper is published on the topic.

Journal

Qualitative Research in Financial MarketsEmerald Publishing

Published: Feb 6, 2017

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