A meta-analysis of the role of working capital management on firm profitability Online publication date: Wed, 03-Nov-2021
by Shakila Yasmin; Md. Mohiuddin
Global Business and Economics Review (GBER), Vol. 25, No. 3/4, 2021
Abstract: Working capital management (WCM) is an important function that influences firm performance. Researchers have widely investigated the role of WCM on firm profitability and found diverse results in different contexts. In order to make an overarching conclusion about the role of WCM on firm profitability, this research conducts quantitative meta-analysis of 46 research articles on this topic. One hundred ninety eight regression models and 248 correlation measures have been aggregated by adopting Hunter et al.'s (1982) three-step methodology. Results indicate that profitability is negatively influenced by efficiency and aggressiveness of strategies in relation to WCM. However, liquidity shows positive impact on profitability. Significant moderating and/or control variables include firm size, growth, age, asset intangibility, leverage, firm risk and overall economic growth. Practitioners may use the aggregate model developed by this study in determining the optimum level WCM efficiency, strategies, and liquidity for given states of the moderating and/or control variables.
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