Singhania, low, with an inverse relationship between the

Singhania,
Sharma and Rohit (2014) conducted a research on Indian manufacturing firms with
the purpose of determining the relationship between working capital management
and corporate profitability and also, to understand how this relationship is
affected in the periods before, during and after a recession. 82 manufacturing
firms listed on the BSE 500 index were studied over a period of 8 years, from
2005 to 2012. The statistical tools used included Pearson correlation matrix,
regression models and panel data analysis, in particular Fixed Effect
Estimation. It was found that gross operating profit is directly related to
payment deferral period and inversely related to receivables’ collection period.
However, both of these relationships are reversed during an economic slump. The
relationship between gross operating profit and inventory conversion period was
observed to be statistically insignificant. Thus, the research concluded that
there is a statistically significant, negative relationship between corporate profitability
and operating cycle. However, during recession, this relationship becomes
positive.

 

Chhapra
and Naqvi (2010) studied firms in the textile sector of Pakistan with the aim
of identifying the impact of efficiency of working capital management,
investment in fixed assets, cost of production, cost of debt, and size of the
firm (or capital) on profitability. The research was conducted on a sample of
55 companies, selected out of 161 companies in Pakistan’s textile sector. The
tools used for statistical analysis were regression, correlation and The
Analysis of Variance (ANOVA) test. It was found that efficiency in working
capital management, investment in fixed assets, COGS and capital have a
statistically significant, positive impact on profitability. However, the
correlation between cost of debt and profitability was found to be very low,
with an inverse relationship between the two variables. It was concluded that
the performance of textile firms in Pakistan can be improved by adopting
efficient working capital management policies, investing more in heavy
machineries and by avoiding debt financing, which was found to decrease
profitability in this sector.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

Lazaridis
and Tryfonidis (2006) conducted a research on companies listed in the Athens
Stock Exchange (ASE), with the objective of establishing a relationship between
working capital management and corporate profitability. The study was
undertaken on a sample of 131 companies listed in the ASE, and data from 2001
to 2004 was analysed using Pearson product moment coefficient of correlation
and regression analysis. It was observed that gross operating profit has a
statistically significant, negative relationship with number of days accounts
receivables and a statistically significant, positive relationship with number
of days accounts payables. Although gross operating profit and inventory
conversion period were found to be negatively correlated, this relationship was
not statistically significant. Thus, the research concluded that there exists a
negative relationship between profitability (measured by gross operating
profit) and working capital management efficiency (measured by the cash
conversion cycle).

Rahman,
Uddin and Ibrahim (2015) conducted a research on companies listed in
Bangladesh’s Chittagong Stock Exchange (CSE) to assess the relationship between
working capital management and corporate profitability, identify the factors
which reduce working capital management efficiency and give suggestions to
improve the same. A sample of 10 companies listed in the CSE were analysed from
2009 to 2014. The study used primary data collected through a structured questionnaire,
which was filled out by financial managers of the selected companies. Secondary
data like publications, journals and annual reports of the sample companies
were also utilised. Descriptive statistics like 5 point Likert scale, ratio of
return on gross working capital and ratio of return on net working capital were
used for data analysis. The researchers observed that a company’s operating
profit shares a positive relationship with efficient working capital
management, with most firms showing a negative correlation between net working
capital and net profit, while some showing a positive correlation between the
same. It was concluded that the companies listed in the CSE can increase their
profitability by adopting a proper working capital management policy, having a
separate finance department to arrange working capital at a lower cost and by
planning for efficient credit management.

 

Baños-Caballero,
García-Teruel, Martínez-Solano (2011) conducted a research on small and
medium-sized enterprises (SMEs) in Spain, with the objective of establishing a
relationship between investment in working capital and profitability. The
sample comprised 1008 non-financial Spanish SMEs, which were studied from 2002
to 2007. Panel data and the generalized method of moments (GMM) were used to
estimate the models used in the research. Correlation and regression were used
to obtain the results. It was found that there exists a concave relationship between
working capital and firm’s profitability. Thus, it was concluded that firms
have an optimal working capital level at which return and risk balance each
other, and any working capital investment done above or below this level results
in a decrease in the firm’s operating performance.