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Cited by 23Working Capital and Financial PerformanceSupply Chain and Inventory ManagementFinancial Analysis and Corporate Governance

Does working capital management affect firm profitability? Evidence from European Union countries

Deari, Fitim, Kukeli, Agim, Barbuta-Misu, Nicoleta, Virlanuta, Florina Oana·2024·Journal of Economic and Administrative Sciences
DOI 10.1108/jeas-11-2021-0222
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Abstract

Purpose: The paper aims to investigate the dynamic relationship between working capital management and firm profitability for a sample of firms from eight European Union (EU) countries for the period 2006–2015. Design/methodology/approach: The panel regression model is used in the study. Firm profitability is measured using the return on assets (ROA) ratio, whilst cash conversation cycle, financial leverage, size, tangibility and cash flow ratio are used as independent variables. The novelty of this study is the use of cash flow ratio to develop the analysis firms by dividing them as healthy and nonhealthy. Findings: The paper reveals that working capital management affects firm profitability, and a positive relationship exists between them. The paper shows differences of working capital management and firm profitability across countries. The striking result of this study is that an inverted U-shape relationship exists between working capital management and firm profitability. Whereas the findings suggest that firms should be as close as possible to the optimal length of cash cycle to increase profitability, and managers should give a priority to working capital optimization. Originality/value: The authors consider results of this study relevant to both researchers and business policymakers in the field of working capital management policies.

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Crossref · 10.1108/jeas-11-2021-0222

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Related

Authors
Deari, F., Kukeli, A., Barbuta-Misu, N., & Virlanuta, F. O.
Affiliations
  • South East European University (MK)
  • Lamar University (US)
ORCID
Venue
Journal of Economic and Administrative Sciences
Publisher
Emerald
Published
2022-04-08
Volume
40
Issue
5
Pages
1060-1080
ISSN
  • 2054-6238 (ISSN-L)
  • 2054-6246
DOI
10.1108/jeas-11-2021-0222
OpenAlex
W4224236360
Cited by
23
References
45
Citations by year
2026: 6 · 2025: 8 · 2024: 4 · 2023: 5
FWCI
7.71
Type
journal article
Language
en
Open access
closed
Licence
www.emerald.com/insight/site-policies (tdm)
Locations
  • Journal of economic and administrative sciences. (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
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 › Financial Analysis and Corporate Governance
Keywords
working capital management, firm profitability, cash conversion cycle, return on assets, cash flow ratios, leverage, firm size, tangibility, inverted U-shaped relationship, European Union firms

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