Journal of Business & Financial Affairs

Working Capital Management and Profitability: Evidence from Manufacturing Sector in Malaysia

Abstract

Jakpar S*, Tinggi M, Siang TK, Johari A, Myint KT and Sadique MS

The purpose of this study is to examine the effect of working capital management on firm’s profitability. The study is based on a sample of 164 manufacturing firms listed on the Main Board of Bursa Malaysia, covering a span of five years from 2007 to 2011. A discriminatory panel regression and Pearson correlation are used to test the hypotheses. The empirical evidence found that there is existence of significant positive relationship between exogenous variables, the average collection period, inventory conversion period and firm’s size and its endogenous variable, which is firm’s profitability. The findings also show a significant inverse relationship between debt ratio (leverage) and firm’s profitability, but the firm’s capability to translate working capital into cash promptly, as proxy in log cash conversion cycle has no impact on firm’s profitability.