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Effects of working capital management on firms' profitability: evidence from cheese‐producing companies

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  • Sara Fernández‐López
  • David Rodeiro‐Pazos
  • Lucía Rey‐Ares

Abstract

Working capital management (WCM) is a key question for firms' profitability, especially for small and medium enterprises faced with severe financial restrictions and whose current assets account for a significant part of their investments. These features describe most firms in the livestock industry. However, studies on WCM related to these firms are scarce. Using a sample of 444 Spanish cheese‐manufacturing companies during the period 2010–2016 and applying a dynamic panel data methodology, this paper analyzes the extent to which the main components defining the WCM policies—days sales outstanding, days inventory outstanding (DIO), days payable outstanding (DPO), and cash conversion cycle (CCC)—affect firms' profitability. Empirical evidence reveals a negative effect of DIO and the CCC on firms' profitability, suggesting the need to reduce the level of inventory of cheese‐manufacturing companies. Similarly, the empirical evidence confirms a negative relationship between DPO and firms' profitability. [EconLit Citations: C23, G31, L25, L79, Q12].

Suggested Citation

  • Sara Fernández‐López & David Rodeiro‐Pazos & Lucía Rey‐Ares, 2020. "Effects of working capital management on firms' profitability: evidence from cheese‐producing companies," Agribusiness, John Wiley & Sons, Ltd., vol. 36(4), pages 770-791, October.
    • Handle: RePEc:wly:agribz:v:36:y:2020:i:4:p:770-791
    DOI: 10.1002/agr.21666
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    2. Joseph Antwi Baafi & Eric Effah Sarkodie & John Kwame Duodu & Seyram Pearl Kumah, 2024. "Why Should We Pay Attention to Working Capital Management? A Case of Ghana," Businesses, MDPI, vol. 4(1), pages 1-18, March.
    3. Sorin Gabriel Anton & Anca Elena Afloarei Nucu, 2020. "The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms," JRFM, MDPI, vol. 14(1), pages 1-14, December.
    4. Raza Ali & Tursoy Turgut & Shaikh Erum & Shaikh Ahsan-ul-Haque, 2024. "Investigating the Symmetric Effects of Working Capital on Profitability in Turkish Banking: An ARDL Empirical Analysis," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 34(1), pages 74-97, March.
    5. Bilgehan TEKİN & Yusuf GÖR, 2022. "Cash conversion cycle and its relationship with profitability as a cash management tool in companies: An application on companies trading in Borsa Istanbul," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 113-130, Autumn.
    6. Vítor João Pereira Domingues Martinho, 2021. "Bibliometric Analysis for Working Capital: Identifying Gaps, Co-Authorships and Insights from a Literature Survey," IJFS, MDPI, vol. 9(4), pages 1-20, December.
    7. Ahmed Mohamed Habib & Nahia Mourad, 2022. "Analyzing the Efficiency of Working Capital Management: a New Approach Based on DEA-Malmquist Technology," SN Operations Research Forum, Springer, vol. 3(3), pages 1-20, September.
    8. Mattia Iotti, 2023. "Financial evaluation and credit access of agricultural firms," Economia agro-alimentare, FrancoAngeli Editore, vol. 25(2), pages 31-67.
    9. Hossain Mohammad Reyad & Mohd Ashhari Zariyawati & Tze San Ong & Haslinah Muhamad, 2022. "The Impact of Macroeconomic Risk Factors, the Adoption of Financial Derivatives on Working Capital Management, and Firm Performance," Sustainability, MDPI, vol. 14(21), pages 1-19, November.
    10. Giuseppe Bonazzi & Paolo Camanzi & Giovanni Ferri & Elisa Manghi & Mattia Iotti, 2021. "Economic Sustainability of Pig Slaughtering Firms in the Production Chain of Denomination of Origin Hams in Italy," Sustainability, MDPI, vol. 13(14), pages 1-18, July.

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