Relationship between working capital management and profitability – empirical evidence from Vietnamese listed firms

Abstract

This paper is aimed at investigating relationship between working capital management and profitability by using Generalized Least Square (GLS) and Fixed Effect Model (FEM) on a panel data of 208 companies listed on the both Ho Chi City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) for the period from 2006 to 2012. We found significant negative relationships between cash conversion cycle, receivable period, inventory period and payable period and gross operating profit. This means that board of management can improve the firm profitability by shortening receivable period, inventory period or cash conversion cycle to an optimal level. The results of industry analysis suggested the effect of economic sector on relationship between working capital management and profitability