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Central European Management Journal

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Year 2018 
Volume 26 
Issue 2

Working Capital Management and Corporate Performance: Evidence from Indonesia

Hadri Kusuma
Islamic University of Indonesia

Ahmad Dhiyaullatief Bachtiar
Islamic University of Indonesia

2018 26 (2) Central European Management Journal

DOI 10.7206/jmba.ce.2450-7814.229

Article contents

Abstract

Purpose: The purpose of this paper is to examine the relationship between working capital management and firm performance for firms listed on the Indonesian Stock Exchange. Prior works have employed many indicators of the working capital. The results of previous studies, however, have been inconsistent. This study is an attempt to find out the best proxy of working capital in explaining firm’s performance.

Methodology: This study employs regression panels for five measures of working capital to model the data for fifty-four firm-year observations that meet the sampling criteria, covering the time 2010–2014. This study also uses adjusted R-squared as the criteria to select the strongest relationship between measures of working capital and firm performance.

Findings: The findings indicate that all proxies of working capital management met expected signs and statistical significance. Hence, working capital management significantly improves firms’ performance. The proxy of inventory turnovers is the best measure of working capital in explaining firm performance.

Originality: To the author’s knowledge, this is the first study examining the relationship between five measures of working capital management and firm performance in Indonesia or in any emerging markets; hence, this study contributes to the scarce literature on the management of working capital.

References

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  30. Agha, H. (2014). Impact of Working Capital Management on Profitability. European Scientific Journal, 10(1): 374–381. [Google Scholar]
  31. Akbar, A. (2014). Working Capital Management and Corporate Performance : Evidences from Textile Sector of China. European Academic Research, II(9): 11440–11456. [Google Scholar]
  32. Arabahmadi, A. and Arabahmadi, F. (2013). The Role of Working Capital Management in Automobile Industry in Iran. International Research Journal of Applied and Basic Sciences, 4(9): 2491–2493. [Google Scholar]
  33. Arshad, Z. and Gondal, M.Y. (2013). Impact of Working Capital Management on Profitability a Case of the Pakistan Cement Industry. Interdisciplinary Journal Of Contemporary Research In Business, 5(2): 384–390. [Google Scholar]
  34. Arunkumar, O.N. and Ramanan, T.R. (2013). Working Capital Management and Profitability: A Sensitivity Analysis. International Journal of Research and Development – A Management Review (IJRDMR) the, 2(1): 52–58. [Google Scholar]
  35. Cagle, C.S., Campbell, S.N., and Jones, K.T. (2013). Analyzing liquidity using the cash conversion, cycle.http://www.journalofaccountancy.com/issues/2013/may/20126764.html [Google Scholar]
  36. Cotis, L. (2004). Lean Working Capital Management. Accounting and Tax Periodicals, 106(1), 56, https://www.questia.com/magazine/1P3-527034401/lean-working-capital-management [Google Scholar]
  37. Deloof, M. (2003). Does working capital management affects profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3): 573–587. [Google Scholar]
  38. Falope, O.I. and Ajilore, O.T. (2009). Working Capital Management and Corporate Profitability: Evidence from Panel Data Analysis of Selected Quoted Companies in Nigeria. Research Journal of Business Management, 3(3): 73–84, http://doi.org/10.3923/rjbm.2009.73.84 [Google Scholar]
  39. Gul, S., Khan, M.B., Rehman, S.U. and Khan, M.T. (2013). Working Capital Management and Performance of SME Sector. European Journal of Business and Management, 5(1): 60–69. [Google Scholar]
  40. Herdjiono, I. and Mega Sari, I. (2017). The Effect of Corporate Governance on the Performance of a Company. Some Empirical Findings from Indonesia. Journal of Management and Business Administration. Central Europe, 25(1): 33–52, http://doi.org/10.7206/jmba.ce.2450-7814.188 [Google Scholar]
  41. Horne, J.C. Van and Wachowicz, J.M. (2009). Fundamentals of Financial Management (13th ed.). England: Prentice-Hall, Inc. [Google Scholar]
  42. Jingmeng, M. (2013). A Study on Working Capital Management System based on Performance. International Journal of Innovation, Management and Technology, 4(1): 100–103, http://doi.org/10.7763/IJIMT.2013.V4.368 [Google Scholar]
  43. Khosla, A. (2015). Impact of Organisational Culture on Organisational Performance. The Journal of Institute of Public Enterprise, 38(1,2): 150–164, http://doi.org/10.7206/mba.ce.2084-3356.159 [Google Scholar]
  44. Kusuma, H. and Ayumardani, A. (2016). the Corporate Governance Efficiency and Islamic Bank Performance : an Indonesian. Polish Journal of Management Studies, 13(1): 111–120, http://doi.org/10.17512/pjms.2016.13.1.11 [Google Scholar]
  45. Makarani, K.F. and Bineshian, Z. (2013). An empirical study on the relationship between working capital management and profitability: A case study of Mehregan Sangesar Company. Management Science Letters, 3(3): 771–776. http://doi.org/10.5267/j.msl.2013.02.013 [Google Scholar]
  46. Makori, D.M. and Jagongo, A. (2013). Working Capital Management and Firm Profitability: Empirical Evidence from Manufacturing and Construction Firms Listed on Nairobi Securities Exchange. Kenya. International Journal of Accounting and Taxation, 1(1): 1–14. [Google Scholar]
  47. Manzoor, H. (2013). Working capital management and profitability : Evidence from Cement sector of Pakistan, listed on Karachi stock exchange. Journal of Business Administration and Management Sciences Research, 2(10): 177–185. [Google Scholar]
  48. Mehta, A. (2014). Working Capital Management and Profitability Relationship-Evidences from Emerging Markets of UAE. International Journal of Management Excellence, 2(3): 195–202. [Google Scholar]
  49. Pratap Singh, H. and Kumar, S. (2014). Working capital management: a literature review and research agenda. Qualitative Research in Financial Markets, 6(2): 173–197, http://doi.org/10.1108/QRFM-04-2013-0010 [Google Scholar]
  50. Rehman, M. U. and Anjum, N. (2013). Determination of the Impact of Working Capital Management on Profitability: An Empirical Study from the Cement Sector in Pakistan. Asian Economic and Financial Review, 3(3): 319. [Google Scholar]
  51. Shin, H.-H. and Soenen, L. (1998). Efficiency of Working Capital Management and Corporate Profitability. Financial Practice and Education, 8(2): 37. [Google Scholar]
  52. Shubita, M.F. (2013). Working Capital Management and Profitability : A Case of Industrial Jordanian Companies. International Journal of Business and Social Science, 4(8): 108–115. [Google Scholar]
  53. Teruel, P.J.G. and Solano, P.M. (2007). Effects of Working Capital Management on SME Profitability. International Journal of Managerial Finance, 3(2): 164–177, http://doi.org/10.2139/ssrn.894865 [Google Scholar]
  54. Tufail, S. (2013). Impact of Working Capital Management on Profitability of Textile Sector in Pakistan. 3rd International Conference on Business Management: 1–29, http://doi.org/10.2139/ssrn.1663354 [Google Scholar]
  55. Verduijn, K. (2013). From Knowledge to Firm Performance: An Empirical analysis of Intellectual Capital Impact in Polish and Dutch Listed Firms. Management and Business Administration. Central Europe, 21(3): 114–138, http://doi.org/10.7206/mba.ce.2084-3356.75 [Google Scholar]
  56. Wuryani, E. (2015). Australian Journal of Basic and Applied Sciences Analysis Working Capital on Company Profitability. Australian Journal of Basic and Applied Sciences, 9(7): 86–88. [Google Scholar]

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APA style

Kusuma, Hadri & Dhiyaullatief Bachtiar, Ahmad (2018). Kusuma, H. , & Dhiyaullatief Bachtiar, A. . (2018). Working Capital Management and Corporate Performance: Evidence from Indonesia. Central European Management Journal, 26(2), 76-88. https://doi.org/10.7206/jmba.ce.2450-7814.229 (Original work published 2018)

MLA style

Kusuma, Hadri and Dhiyaullatief Bachtiar, Ahmad. Kusuma, H. , and A. Dhiyaullatief Bachtiar. “Working Capital Management And Corporate Performance: Evidence From Indonesia”. 2018. Central European Management Journal, vol. 26, no. 2, 2018, pp. 76-88.

Chicago style

Kusuma, Hadri and Dhiyaullatief Bachtiar, Ahmad. Kusuma, Hadri , and Ahmad Dhiyaullatief Bachtiar. “Working Capital Management And Corporate Performance: Evidence From Indonesia”. Central European Management Journal, Central European Management Journal, 26, no. 2 (2018): 76-88. doi:10.7206/jmba.ce.2450-7814.229.

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