Effects of working capital management on SME profitability
Abstract
Purpose: The object of the research presented in this paper is to provide empirical evidence on the effects of working capital management on the profitability of a sample of small and medium‐sized Spanish firms. Design/methodology/approach: The authors have collected a panel of 8,872 small to medium‐sized enterprises (SMEs) covering the period 1996‐2002. The authors tested the effects of working capital management on SME profitability using the panel data methodology. Findings: The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also improves the firm's profitability. Originality/value: This work contributes to the literature in two ways. First, no previous such evidence exists for the case of SMEs. Second, unlike previous studies, in the current work robust test have been conducted for the possible presence of endogeneity problems. The aim is to ensure that the relationships found in the analysis carried out are due to the effects of the cash conversion cycle on corporate profitability and not vice versa.
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García-Teruel and Martínez-Solano (2007) used SGMM to examine the impact of working capital management on firm profitability, highlighting its effectiveness in controlling for endogeneity.
“García-Teruel and Martínez-Solano (2007) used SGMM to examine the impact of working capital management on firm profitability, highlighting its effectiveness in controlling for endogeneity.”
From Business growth and management costs as moderators of the inventory-performance link: Evidence from Vietnamese manufacturing firms (2025) · cites this paper as García-Teruel and Martínez-Solano (2007)
Cites
Specification Tests in Econometrics
Hausman, J. A. (1978) · Econometrica · doi:10.2307/1913827 · Cited by 18,820 · see citing works
Does Working Capital Management Affect Profitability of Belgian Firms?
Deloof, M. (2003) · Journal of Business Finance & Accounting · doi:10.1111/1468-5957.00008 · Cited by 1,849 · see citing works
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Working Capital Management: The Effect of Market Valuation and Profitability in Malaysia
Binti Mohamad, N. E. A., & Mohd Saad, N. B. (2010) · International Journal of Business and Management · doi:10.5539/ijbm.v5n11p140 · Cited by 286 · see citing works
Working capital management: Evidence from Norway
Lyngstadaas, H., & Berg, T. (2016) · International Journal of Managerial Finance · doi:10.1108/ijmf-01-2016-0012 · Cited by 139 · see citing works
Working capital management and firms’ profitability: Evidence from emerging Asian countries
Singhania, M., & Mehta, P. (2017) · South Asian Journal of Business Studies · doi:10.1108/sajbs-09-2015-0060 · Cited by 109 · see citing works
Tran, H., Abbott, M., & Jin Yap, C. (2017) · Journal of Small Business and Enterprise Development · doi:10.1108/jsbed-05-2016-0070 · Cited by 84 · see citing works
Fernández‐López, S., Rodeiro‐Pazos, D., & Rey‐Ares, L. (2020) · Agribusiness · doi:10.1002/agr.21666 · Cited by 77 · see citing works
Working capital management during the global financial crisis: The Australian experience
Ramiah, V., Zhao, Y., & Moosa, I. (2014) · Qualitative Research in Financial Markets · doi:10.1108/qrfm-09-2012-0026 · Cited by 53 · see citing works
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Economic downturns and working capital management practices: A qualitative enquiry
Simon, S., Sawandi, N., Kumar, S., & El-Bannany, M. (2021) · Qualitative Research in Financial Markets · doi:10.1108/qrfm-09-2020-0181 · Cited by 25 · see citing works
Working capital, cash flow and profitability of intensive MSMEs: Evidence from Ecuador
Briones, O. F., Camino-Mogro, S. M., & Navas, V. J. (2024) · Journal of Entrepreneurship in Emerging Economies · doi:10.1108/jeee-01-2022-0003 · Cited by 21 · see citing works
Umar, U. H., & Al-Faryan, M. A. S. (2024) · Managerial Finance · doi:10.1108/mf-12-2022-0606 · Cited by 22 · see citing works
Mazlan, A. R., & Leng, C. Y. (2018) · Indian-Pacific Journal of Accounting and Finance · doi:10.52962/ipjaf.2018.2.1.39 · Cited by 13 · see citing works
Working capital management, COVID-19, and profitability of UK retail firms
Elfeituri, H., & Alfitouri, T. (2025) · Corporate Ownership and Control · doi:10.22495/cocv22i2art7 · Cited by 1 · see citing works
Nguyen Van, B., Phan Thanh, H., & Nguyen Thanh, C. (2025) · Investment Management and Financial Innovations · doi:10.21511/imfi.22(3).2025.09
Cosima, T., Ahmed, E. M., & Elfaki, K. E. (2025) · Quality & Quantity · doi:10.1007/s11135-025-02250-3
Working Capital Management and Profitability: Evidence from Indian Listed Firms
Parmar, K. S. (2025) · Journal of Information Systems Engineering and Management · doi:10.52783/jisem.v10i52s.10737
Boota, M., Riaz, A., Ullah, M. F., & Falzon, J. (2025) · Journal of Asian development studies · doi:10.62345/jads.2025.14.3.143
- Authors
- Juan García‐Teruel, P., & Martínez‐Solano, P.
- Venue
- International Journal of Managerial Finance
- Publisher
- Emerald
- Published
- 2007-04-10
- Volume
- 3
- Issue
- 2
- Pages
- 164-177
- ISSN
- 1743-9132 (ISSN-L)
- OpenAlex
- W3121210261
- Cited by
- 999
- References
- 2
- Citations by year
- 2026: 38 · 2025: 43 · 2024: 47 · 2023: 68 · 2022: 53 · 2021: 77 · 2020: 74 · 2019: 74 · 2018: 61 · 2017: 60 · 2016: 52 · 2015: 71 · 2014: 94 · 2013: 71 · 2012: 61
- FWCI
- 27.70
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- International Journal of Managerial Finance (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Working Capital and Financial Performance
- Social Sciences › Business, Management and Accounting › Management Information Systems › Supply Chain and Inventory Management
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- working capital management, small and medium-sized enterprises, firm profitability, inventory reduction, accounts receivable, cash conversion cycle, Spanish companies
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