Effects of working capital management on the profitability of portuguese manufacturing firms
Year: 2011
Type: dissertation
Abstract: The purpose of this study is to provide empirical evidence about the effects of working capital management on the profitability of Portuguese manufacturing firms.In accordance to this purpose, profitability was measured by the return-on-assets ratio and the efficiency of the working capital management was measured by the aggregate summary indicator: net trade cycle.A longitudinal database covering the period 1996-2006, collected from Instituto Nacional de Estatística (Portuguese Statistical Office), was analyzed under panel data methodology.In line with previous research, the empirical findings of this study provide evidence that there is a negative linear relationship between profitability and net trade cycle.Moreover, a reduction in the average number of days of accounts receivable and in the average number of days of inventories leads to an increase in firm´s profitability.Also a decrease in the average number of days of accounts payable tends to increase profitability.In addition, our study is the first one to test a non-linear relation between profitability and working capital management for a sample of Portuguese firms.Our results suggest a non-linear (concave) relationship between these two variables, which indicates there is an optimum net trade cycle level that maximizes firm's profitability.
Author: Sónia Silva
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W203619260