Working capital management and firms' profitability - A comparative study on manufacturing and service firms in HOSE

Abstract

The goal of this study is to investigate the impact of working capital management on firms’ profitability. In the study, account receivable period (ACP), inventory conversion cycle (ICP), and account payable period (APP) are factors of working capital management The study will compare the efficient of working capital management from two industries are manufacturing industry and service industry. Panel data is collected from 117 companies consist of 63 companies in manufacturing sector and 54 companies in services sector listed on Ho Chi Minh Stock Exchange (HOSE) for the period from 2008-2014. By using Random Effect Model (FEM), I found that there is a significant negative relationship between inventory conversion period and firm profitability. The result of the study also found that account payable period increase will make firm’s profitability decrease. From the study, account receivable period do not significantly impact on profitability. By comparing two industries, manufacturing sector will be affected by adjusting working capital more than service sector. Therefore, the managers need to consider managing working capital at the optimum lever for each industry to help firm create more profits.