Working Capital Management and Profitability: Evidence from an Emergent Economy
Abstract
The purpose of this paper is to study the impact of working capital management on the profitability of Argentine manufacturing firms, using the main theoretical framework suggested by the literature. Many studies have addressed this problem in developed economies, but such studies are quite rare in emerging and developing economies. The companies analyzed were selected using a stratified sampling technique based on an economic criterion. The data cover a time horizon of three years and were collected through a questionnaire. To achieve the study objectives, we used a fixed-effects regression model, which proved to be reliable to explain the effect of working capital management on profitability. The results highlighted a positive and statistically significant relationship between all components of working capital and profitability, suggesting that an increase in each variable considered determines an improvement in performance in terms of ROA and ROE. Conversely, leverage has shown a statistically significant negative relationship to profitability, suggesting that an increase in debt has a negative impact on firm performance.
Keywords: Working Capital Management, Profitability, SMEs, Emerging Economy, Leverage.References
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