EXPLORING THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND PROFITABILITY: EVIDENCE FROM DEVELOPING ECONOMIES IN SOUTHEASTERN EUROPE
EXPLORING THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND PROFITABILITY: EVIDENCE FROM DEVELOPING ECONOMIES IN SOUTHEASTERN EUROPE

Summary/Abstract: Efficient working capital management plays a crucial role in determining a company's financial sustainability and performance. By effectively managing components such as accounts receivable, inventory, and accounts payable, firms can optimize their liquidity, reduce financing costs, and improve profitability. The study reviews previous research, highlighting key findings related to working capital management's impact on profitability. Further through an empirical analysis study analyses previously mentioned relationship on the sample of 18 manufacturing companies from stock exchanges in the Southeast European region, namely Zagreb Stock Exchange (ZSE), Belgrade Stock Exchange (BELEX), Banja Luka Stock Exchange (BLSE), and Sarajevo Stock Exchange (SASE). The period under analysis spans from 2018 to 2022. For the purpose of the analysis study employs different data analysis techniques (Pooled Ordinary Least Squares (OLS) regression, fixed effects model, and random effects model), where Pooled OLS regression analysis emerged as the most appropriate model. The OLS estimation reveals a statistically significant relation between all explanatory variables and return on assets. Specifically, the cash conversion cycle exhibits a notable negative correlation with working capital management. Furthermore, both sales growth and firm size demonstrate positive correlations with ROA, whereas the debt ratio displays a significant negative correlation with ROA.

• Details
• Contents