Relationship between working capital management and SMEs' profitability : A study in HOSE market
Abstract
Working capital management plays an important role on firms’ performance and
profitability that managers should deeply understand. The main objective of this study is
to investigate the relationship between firms’ profitability and working capital
components. The measure for profitability is return on assets (ROA) which being used as
dependent variable, while working capital components: receivable period (RP); inventory
period (IP); payable period (PP) and cash conversion cycle (CCC) are used as
independent variables. Besides that, leverage ratio, firm size and sale growth are adopted
as control variables. This relationship is mainly examined using the panel regression
method for a sample of 81 small and medium enterprises listed in Hochiminh Stock
Exchange for a period of five years from 2010 - 2014 . The findings are contrary to all
the hypotheses which indicate significant and positive relationship between working
capital elements and firms’ profitability. All independent variables as RP, IP, PP and
CCC are significantly and positively correlated to ROA