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A Meta-Analysis of the Impact of Working Capital on Profitability

Author

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  • Samuel Tabot Enow

    (The IIE Vega School, South Africa)

Abstract

Working capital and profitability are two important core concepts in financial management and accounting. The management of these two concepts can affect an investor’s decision to invest in a firm. Thus, there have been many publications stressing the need to effectively manage working capital because of its significant impact on profitability. However, working capital has been hardly mentioned by any senior manager or executive as one of the value drivers that enhances profitability. Therefore, the aim of this study is to investigate the strength and the extent to which profitability depends on working capital. This study is motivated by a lack of research in this area. Using a meta-analysis of 32 published journal articles and dissertations, the study finds that working capital accounts for 37.8% of the variability in profitability. Also, the results of a Kolmogorov-Smirnov test reveal that the distribution of the coefficient of determination is not normally distributed and is not a good fit to explain the effect of working capital on profitability, hence independent of each other. The implication of this study is that research entitled “the effect of working capital management on profitability” should be scrutinized before being accepted for publication.

Suggested Citation

  • Samuel Tabot Enow, 2022. "A Meta-Analysis of the Impact of Working Capital on Profitability," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 10(1), pages 1-10.
    • Handle: RePEc:ejn:ejefjr:v:10:y:2022:i:1:p:1-10
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    References listed on IDEAS

    as
    1. Tran Viet Hoang, 2015. "Impact of Working Capital Management on Firm Profitability: The Case of Listed Manufacturing Firms on Ho Chi Minh Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 779-789.
    2. Yakubu, Ibrahim Nandom & Alhassan, Mohammed Mubarik & Fuseini, Abdul-Aziz, 2017. "The Impact of Working Capital Management on Corporate Performance: Evidence from Listed Non-Financial Firms in Ghana," MPRA Paper 95113, University Library of Munich, Germany.
    3. Tran Viet Hoang, 2015. "Impact of Working Capital Management on Firm Profitability: The Case of Listed Manufacturing Firms on Ho Chi Minh Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 779-789, May.
    4. Şamiloğlu, Famil & Akgün, Ali İhsan, 2016. "The Relationship between Working Capital Management and Profitability: Evidence from Turkey," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 7(2), pages 1-14, April.
    5. 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.
    6. Tarik Hossain, 2020. "The effect of working capital management on profitability: A study on manufacturing companies in Bangladesh," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(6), pages 114-122, October.
    Full references (including those not matched with items on IDEAS)

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