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Working Capital as a Determinant of Corporate Profitability

Author

Listed:
  • Ashwin Madhou

    (School of Economics, Finance and Marketing, RMIT University, Level 11, 445 Swanston Street, Melbourne, Victoria 3000, Australia)

  • Imad Moosa

    (School of Economics, Finance and Marketing, RMIT University, Level 11, 445 Swanston Street, Melbourne, Victoria 3000, Australia)

  • Vikash Ramiah

    (School of Commerce, University of South Australia, RM 3.42, 37-44 North Terrace, Adelaide 5000, Australia)

Abstract

This study examines the interaction of corporate profitability, working capital management and firm characteristics. Advanced quantitative techniques, such as dynamic panel estimation and median regression, are used to test the underlying relations. The findings indicate that both size and debt ratio are important determinants of corporate profitability and that profitable firms and losing firms tend to have different determinants of profitability. Several findings indicate that the effects of the components of working capital on profitability depend on firm characteristics such as the state of working capital (surplus/deficit) and where the firm lies in the profitability league.

Suggested Citation

  • Ashwin Madhou & Imad Moosa & Vikash Ramiah, 2015. "Working Capital as a Determinant of Corporate Profitability," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-17, December.
    • Handle: RePEc:wsi:rpbfmp:v:18:y:2015:i:04:n:s0219091515500241
    DOI: 10.1142/S0219091515500241
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    References listed on IDEAS

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