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Working capital management and firms’ profitability: evidence from emerging Asian countries

Working capital management and firms’ profitability: evidence from emerging Asian countries PurposeExcessive working capital or paucity of the same can impair the profits and health of an organization. The purpose of this paper is to analyze the impact of working capital management (WCM) on the profitability of firms for a sample comprising of non-financial companies in countries of South East Asia, South Asia and East Asia.Design/methodology/approachAnalytical modeling has been used to estimate the impact of WCM on profitability with the help of financial data of the companies listed in major indices of the target countries (India, Pakistan, Myanmar, Sri Lanka, Bangladesh, Singapore, Thailand, Malaysia, Indonesia, Vietnam, Hong Kong, Japan, China, South Korea and Taiwan). The mathematical model presented in the paper has been tested using two-step-generalized method of moments.FindingsThe study reveals a non-linear relationship between profitability of a firm and WCM for 11 economies of the Asia Pacific region.Research limitations/implicationsThe results are subject to the differences in the market dynamics of different economies (countries). Moreover, the limitations of the specific statistical method used to verify the model apply to the model too.Practical implicationsThe research can be used as a tool by the firms (global as well as local) to ameliorate their performance by understanding the effects of WCM on profitability in different global markets and adjusting their working capital accordingly.Originality/valueThe research on the impact of WCM on profitability of the firms of South East Asia, South Asia and East Asia is a new effort and tries to make the importance of WCM more luciferous. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Business Studies Emerald Publishing

Working capital management and firms’ profitability: evidence from emerging Asian countries

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2398-628X
DOI
10.1108/SAJBS-09-2015-0060
Publisher site
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Abstract

PurposeExcessive working capital or paucity of the same can impair the profits and health of an organization. The purpose of this paper is to analyze the impact of working capital management (WCM) on the profitability of firms for a sample comprising of non-financial companies in countries of South East Asia, South Asia and East Asia.Design/methodology/approachAnalytical modeling has been used to estimate the impact of WCM on profitability with the help of financial data of the companies listed in major indices of the target countries (India, Pakistan, Myanmar, Sri Lanka, Bangladesh, Singapore, Thailand, Malaysia, Indonesia, Vietnam, Hong Kong, Japan, China, South Korea and Taiwan). The mathematical model presented in the paper has been tested using two-step-generalized method of moments.FindingsThe study reveals a non-linear relationship between profitability of a firm and WCM for 11 economies of the Asia Pacific region.Research limitations/implicationsThe results are subject to the differences in the market dynamics of different economies (countries). Moreover, the limitations of the specific statistical method used to verify the model apply to the model too.Practical implicationsThe research can be used as a tool by the firms (global as well as local) to ameliorate their performance by understanding the effects of WCM on profitability in different global markets and adjusting their working capital accordingly.Originality/valueThe research on the impact of WCM on profitability of the firms of South East Asia, South Asia and East Asia is a new effort and tries to make the importance of WCM more luciferous.

Journal

South Asian Journal of Business Studies – Emerald Publishing

Published: Mar 6, 2017

References

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