Working capital management and firm profitability

Managing a firm’s current assets and liabilities (working capital management) is highly relevant to the success of that firm. While the short-term liquidity effects of working capital management are straightforward to derive, it is an empirical question how it affects firm profitability. This short...

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Bibliographic Details
Published in:Journal of management control 2013, Vol.24 (1), p.77-87
Main Authors: Knauer, Thorsten, Wöhrmann, Arnt
Format: Article
Language:English
Subjects:
Accounting/Auditing
Business and Management
Business Strategy/Leadership
Business Taxation/Tax Law
Economic models
Operations Management
Organization
Short Survey Paper
Working capital
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Summary:Managing a firm’s current assets and liabilities (working capital management) is highly relevant to the success of that firm. While the short-term liquidity effects of working capital management are straightforward to derive, it is an empirical question how it affects firm profitability. This short survey paper consolidates the empirical literature on the association between working capital management and firm profitability. This state of the art analysis provides evidence of positive effects of accounts receivable management and inventory management on profitability. However, results for the effects of accounts payable management on profitability are driven by reverse causality. Finally, this paper highlights critical aspects of prior research and points to avenues for future research.
ISSN:2191-4761
2191-477X
DOI:10.1007/s00187-013-0173-3