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