Working Capital Management and Profitability in Property Industry: Evidence from ASEAN Countries
DOI:
https://doi.org/10.38035/dijefa.v5i1.2515Keywords:
Working Capital Management, Profitability, Property Industry, Feasible Generalized Least Squares.Abstract
We are investigating the role of working capital on the profitability of real estate companies. Working capital is at the core of profitability in the property business model. Existing literature has established a negative relationship between working capital and profitability. To verify this hypothesis, we propose a linear regression model that links measures of profitability (ROE and Profit Margin) with measures of working capital (Current Asset to Current Liability Ratio and Working Capital Days); Liquidity (Current Asset to Current Liability Ratio), Leverage (Debt to Total Asset Ratio), Size, and company dummies serving as control variables. The regression model is estimated using a panel data set consisting of 376 companies in the ASEAN region from 2013 to 2022 (3760 annual observations per company). Model selection procedures suggest the application of Feasible Generalized Least Squares (FGLS) due to unobserved heterogeneity and the presence of serial correlation and heteroskedasticity. As expected, we find that working capital has a significant negative relationship with profitability. Subsequent robustness tests indicate consistent findings across specifications and country samples.
References
Afrifa, G. A., Tingbani, I., & Adesina, O. O. (2022). Stochastic frontier modelling of working capital efficiency across Europe. Technological Forecasting and Social Change, 184. https://doi.org/10.1016/j.techfore.2022.122012
Akbar, M., Akbar, A., & Draz, M. U. (2021). Global Financial Crisis, Working Capital Management, and Firm Performance: Evidence From an Islamic Market Index. SAGE Open, 11(2). https://doi.org/10.1177/21582440211015705
Aktas, N., Croci, E., & Petmezas, D. (2015). Is working capital management value-enhancing? Evidence from firm performance and investments. Journal of Corporate Finance, 30(1), 98–113. https://doi.org/10.1016/j.jcorpfin.2014.12.008
Anton, S. G., & Afloarei Nucu, A. E. (2021). The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms. Journal of Risk and Financial Management, 14(1). https://doi.org/10.3390/jrfm14010009
Arshad, M. U. (2021). Forecasted E/P Ratio and ROE: Shanghai Stock Exchange (SSE), China. SAGE Open, 11(2). https://doi.org/10.1177/21582440211023189
Bagh Tanveer, N. I. M. , khan atif muhammad. (2016). International Journal of Economics and Financial Issues. International Journal of Economics and Financial Issues, ISSN: 2146-4138, 1097–1197. http:www.econjournals.com
Bazhair, A. H. (2023). Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis. SAGE Open, 13(2). https://doi.org/10.1177/21582440231172959
Boisjoly, R. P., Conine, T. E., & McDonald, M. B. (2020). Working capital management: Financial and valuation impacts. Journal of Business Research, 108, 1–8. https://doi.org/10.1016/j.jbusres.2019.09.025
Claassen, B., Dam, L., & Heijnen, P. (2023). Corporate financing policies, financial leverage, and stock returns. North American Journal of Economics and Finance, 68. https://doi.org/10.1016/j.najef.2023.101992
Endris, E., & Kassegn, A. (2023). Profitability of Agricultural Micro and Small-Scale Enterprise in North Wollo Zone, Amhara Regional State, Ethiopia. SAGE Open, 13(2). https://doi.org/10.1177/21582440231169632
Gao, W., Wen, S., Li, H., & Lyu, X. (2024). Executives’ carbon cognition and corporate carbon performance: The mediating role of corporate low-carbon actions and the moderating role of firm size. Heliyon, 10(1). https://doi.org/10.1016/j.heliyon.2023.e23959
Gurvich, E., & Vakulenko, E. (2017). Macroeconomic and structural properties of the Russian labor market: A cross-country comparison. Russian Journal of Economics, 3(4), 411–424. https://doi.org/10.1016/j.ruje.2017.12.006
Hussain, S., Nguyen, V. C., Nguyen, Q. M., Nguyen, H. T., & Nguyen, T. T. (2021). Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis. Humanities and Social Sciences Communications, 8(1). https://doi.org/10.1057/s41599-021-00778- x
Johansyah, M. D., Sambas, A., Qureshi, S., Zheng, S., Abed-Elhameed, T. M., Vaidyanathan, S., & Sulaiman, I. M. (2024). Investigation of the hyperchaos and control in the fractional order financial system with profit margin. Partial Differential Equations in Applied Mathematics, 9. https://doi.org/10.1016/j.padiff.2023.100612
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.
Kasiran, F. W., Mohamad, N. A., & Chin, O. (2016). Working Capital Management Efficiency: A Study on the Small Medium Enterprise in Malaysia. Procedia Economics and Finance, 35, 297–303. https://doi.org/10.1016/s2212-5671(16)00037-x
Meah, M. R., Sen, K. K., & Sahabuddin, M. (2021). Do Working Capital Decision and Efficiency of Working Capital Management Contribute to the Profitability? Evidence from Bangladesh. Asia-Pacific Journal of Management Research and Innovation, 17(1–2), 7–16. https://doi.org/10.1177/2319510x211047368
Michel, L., Lahiani, A., Aytac, B., & Hoang, T. H. Van. (2020). Working capital management and profitability of wine firms in France: an empirical analysis. International Journal of Entrepreneurship and Small Business, 41(3), 368. https://doi.org/10.1504/ijesb.2020.10032621
Nguyen, V. C., Nguyen, T. N. L., Tran, T. T. P., & Nghiem, T. T. (2019). The impact of financial leverage on the profitability of real estate companies: A study from Vietnam stock exchange. Management Science Letters, 9(Spceial Issue 13), 2315–2326. https://doi.org/10.5267/j.msl.2019.7.023
Othuon, D. O., Gatimbu, K. K., Musafiri, C. M., & Ngetich, F. K. (2021). Working capital management impacts on small-scale coffee wet mills’ financial performance in eastern Kenya. Heliyon, 7(9). https://doi.org/10.1016/j.heliyon.2021.e07887
Ratnasari, D., Akuntansi, J., & Bandung, P. N. (2021). Pengaruh WCTO dan DER terhadap ROE pada Perusahaan Farmasi di BEI The effect of WCTO and DER on ROE at pharmaceutical companies on IDX period 2014-2018 Ine Mayasari Endang Hatma Juniwati. Indonesian Journal of Economics and Management, 1(2), 306–315
Rodeiro-Pazos, D., Fernández-López, S., Rios-Rodríguez, R., & Dios-Vicente, A. (2023). Working capital management and firm sales growth: Evidence from fish processing industry. Agribusiness, 39(4), 1254–1278. https://doi.org/10.1002/agr.21816
Rostami, S., Rostami, Z., & Kohansal, S. (2016). The Effect of Corporate Governance Components on Return on Assets and Stock Return of Companies Listed in Tehran Stock Exchange. Procedia Economics and Finance, 36, 137–146. https://doi.org/10.1016/s2212-5671(16)30025-9
Shaik, A. R. (2021). Components of working capital and profitability in Saudi Arabian companies. Investment Management and Financial Innovations, 18(3), 52–62. https://doi.org/10.21511/imfi.18(3).2021.05
Vukovic, D. B., Spitsina, L., Spitsin, V., & Gribanova, E. (2023). The joint impact of working capital and platform-economy on firm profitability: The case of e-business model in transition country. Journal of Open Innovation: Technology, Market, and Complexity, 9(2). https://doi.org/10.1016/j.joitmc.2023.100060
Wang, Z., Akbar, M., & Akbar, A. (2020). The interplay between working capital management and a firm’s financial performance across the corporate life cycle. Sustainability (Switzerland), 12(4). https://doi.org/10.3390/su12041661
Yilmaz, I. (2022). Leverage and Investment Cash Flow Sensitivity: Evidence from Muscat Securities Market in Oman. SAGE Open, 12(3). https://doi.org/10.1177/21582440221119487
Zheng, X., Zhou, Y., & Iqbal, S. (2022). Working capital management of SMEs in COVID-19: role of managerial personality traits and overconfidence behavior. Economic Analysis and Policy, 76, 439–451. https://doi.org/10.1016/j.eap.2022.08.006
Zimon, G., & Tarighi, H. (2021). Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland. Journal of Risk and Financial Management, 14(4). https://doi.org/10.3390/jrfm14040169
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Juita Tiur Napitulu, Moch. Doddy Ariefianto
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish their manuscripts in this journal agree to the following conditions:
- The copyright on each article belongs to the author(s).
- The author acknowledges that the Dinasti International Journal of Economics, Finance & Accounting (DIJEFA) has the right to be the first to publish with a Creative Commons Attribution 4.0 International license (Attribution 4.0 International (CC BY 4.0).
- Authors can submit articles separately, arrange for the non-exclusive distribution of manuscripts that have been published in this journal into other versions (e.g., sent to the author's institutional repository, publication into books, etc.), by acknowledging that the manuscript has been published for the first time in the Dinasti International Journal of Economics, Finance & Accounting (DIJEFA).
