Working capital management and firm profitability: a meta-analysis

Harsh Pratap Singh, Satish Kumar and Sisira Colombage

Qualitative Research in Financial Markets, 2017, vol. 9, issue 1, 34-47

Abstract: Purpose - The purpose of this study is to quantitatively aggregate the findings of prior literature on the effect of working capital management (WCM) on corporate profitability using the meta-analysis technique developed by Hunteret al.(1982). Design/methodology/approach - A set of 46 research articles that directly studied the relationship between WCM, and profitability was analyzed for the purpose. In addition to overall meta-analysis, a detailed subgroup study was also conducted to test whether the differences in results are due to moderating effects related to different profitability proxies, economic development of a specific country and size of the firms under study. Findings - The findings of this meta-analysis confirm that WCM is negatively associated with profitability, which means an aggressive WCM policy leads to higher profitability. Overall, and in all the subgroup studies, the cash conversion cycle was found to be negatively associated with profitability. Originality/value - Unlike narrative literature review papers, this meta-analysis provides quantitatively aggregate evidence on the relationship of WCM and firms’ profitability. To the best of authors’ knowledge, no previous meta-analysis paper is published on the topic.

Keywords: Meta-analysis; Working capital management; Cash conversion cycle; Firm profitability (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:qrfmpp:qrfm-06-2016-0018

DOI: 10.1108/QRFM-06-2016-0018

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