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Managing Optimal Working Capital and Corporate Performance: Evidence from Vietnam

Author

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  • Ha Thi Thuy Van
  • Dang Ngoc Hung
  • Vu Thi Thuy Van
  • Ngo Thanh Xuan

Abstract

This paper examined the impact of working capital management (WCM) on corporate performance (CP) in Vietnam. We considered whether there exists an optimal cash conversion cycle (CCC), an optimal net trade cycle (NTC) and how WCM affects CP. We also considered the effect of WCM on CP under financial constraints. This research uses the GLS regression method with research data from listed companies on Vietnam’s stock market from 2009 to 2018, with 5383 business observations in ten years. Initially, this study discovered that CCC and NTC were statistically significant and inversely related to corporate performance (measured by ROA and Tobin's q). However, when continuing to use quadratic functions to analyze data, the study discovered that optimal CCC and NTC have not a linear but an inverted U shape instead. Research results have determined the level of optimal CCC, and NTC affecting CP (measured by ROA); though it was not meaningful when CP is measured by Tobin's q. WCM was also considered in the case of companies with limited financial conditions.

Suggested Citation

  • Ha Thi Thuy Van & Dang Ngoc Hung & Vu Thi Thuy Van & Ngo Thanh Xuan, 2019. "Managing Optimal Working Capital and Corporate Performance: Evidence from Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(9), pages 977-993.
    • Handle: RePEc:asi:aeafrj:v:9:y:2019:i:9:p:977-993:id:1853
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    Citations

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    Cited by:

    1. Sunusi Garba & Boudiab Mourad & Muhammad Adamu Chamo, 2020. "The Effect of Inventory Turnover Period on the Profitability of Listed Nigerian Conglomerate Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 287-292, April.
    2. Martha Coleman & Mengyun Wu, 2020. "Combination of Ant Colony Optimization and K-nearest Neighbours: The Influence of Working Capital Management on Corporate Performance," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 45(4), pages 395-415, November.
    3. Nguyen Thi Thanh Phuong & Dang Ngoc Hung, 2020. "Board of Directors and Financial Reporting Quality in Vietnam Listed Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 296-305, July.
    4. Vo Thi Van Khanh & Dang Ngoc Hung, 2020. "Impact of Earnings Quality on the Debt Maturity: The Case of Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(1), pages 1-12, January.

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