The Effect of Working Capital Management on Profitability: Evidence from Malaysian Construction Firms
Abstract
Working capital management is an essential part of a sound business. The main objective of this research is to investigate the effect of working capital management on profitability. The regression analysis was carried out on a panel sample of 30 construction firms listed on Bursa Malaysia over a five-year period from 2015 to 2019. The findings suggest that there is a significant positive relationship between Days Inventory Outstanding (DIO) and Gross Operating Profit (GOP) as well as a significant negative relationship between Days Payables Outstanding (DPO) and GOP. Thus, firms can maximise their profitability by maintaining higher inventory level and paying off creditors in a shorter time frame.
References
Napompech, K. (2012). Effects of Working Capital Management on the Profitability of Thai Listed Firms. International Journal of Trade, Economics and Finance, 3(3). doi: 10.7763/IJTEF.2012.V3.205
Tran, H., Abbott, M., & Jin-Yap, C. (2017). How does working capital management affect the profitability of Vietnamese small and medium sized enterprises?. Journal of Small Business and Enterprise Development, 24(1), 2-11.
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