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Working Capital Management and the Profitability of Non- Financial Firms Listed on the Zimbabwe Stock Exchange (ZSE)

Author

Listed:
  • Walter Gachira

    (Harare Institute of Technology, Zimbabwe)

  • Washington Chiwanzwa

    (Harare Institute of Technology, Zimbabwe)

  • Dingilizwe Nkomo

    (Harare Institute of Technology, Zimbabwe)

  • Runesu Chikore

    (Harare Institute of Technology, Zimbabwe)

Abstract

Working capital is essential for the day-to-day operations of a firm. The study examines the impact of working capital management on the profitability of non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Using panel data methodology, the direction and extent of the impact of working capital management on profitability is scrutinised. The regression analysis is based on a panel sample of 39 non-financial firms listed on the ZSE from 2009 to 2013, the period under which the Zimbabwean economy has been operating under the multicurrency system. It was found that there is a positive relationship between debtors’ days and firm’s profitability, a negative relationship between creditors’ days and profitability and a positive relationship between firm’s cash conversion cycle and its profitability. There is some negative relationship between current ratio and profitability, while inventory turnover days and profitability are positively related. Debt to asset ratio as a control variable has a significant negative relationship with firm value and profitability. The results of the study show that for the companies included in the sample, there are mixed effects of the components of working capital on firm performance. Managers can thus create value for shareholders by taking note of the existence of such relationships and take measures that enhance firm profitability.

Suggested Citation

  • Walter Gachira & Washington Chiwanzwa & Dingilizwe Nkomo & Runesu Chikore, 2014. "Working Capital Management and the Profitability of Non- Financial Firms Listed on the Zimbabwe Stock Exchange (ZSE)," European Journal of Business and Economics, Central Bohemia University, vol. 9(2), pages 5171:9-5171, November.
    • Handle: RePEc:aad:ejbejj:v:9:y:2014:i:2:p:517
    DOI: 10.12955/ejbe.v9i2.517
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    References listed on IDEAS

    as
    1. Guariglia, Alessandra & Mateut, Simona, 2006. "Credit channel, trade credit channel, and inventory investment: Evidence from a panel of UK firms," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2835-2856, October.
    2. Michael S. Long & Ileen B. Malitz & S. Abraham Ravid, 1993. "Trade Credit, Quality Guarantees, and Product," Financial Management, Financial Management Association, vol. 22(4), Winter.
    3. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    4. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
    5. Adina Elena Dănuleţiu, 2010. "Working Capital Management And Profitability: A Case Of Alba County Companies," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(12), pages 1-36.
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    Cited by:

    1. Kwadwo Boateng Prempeh Godfred Peprah-Amankona, 2020. "Does Working Capital Management Affect Profitability of Ghanaian Manufacturing Firms?," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(1), pages 1-18, May.
    2. Luca Sensini & Maria Vazquez, 2023. "Effects of Working Capital Management on SME Profitability: Evidence from an Emerging Economy," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(4), pages 1-85, February.
    3. Amr Ahmed Moussa, 2018. "The impact of working capital management on firms’ performance and value: evidence from Egypt," Journal of Asset Management, Palgrave Macmillan, vol. 19(4), pages 259-273, July.

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    More about this item

    Keywords

    Working CapitalProfitability; Liquidity; Multicurrency System;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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