Moderating effect of business environment to working capital and profitability in Indonesia

Abstract

The purpose of this research is to provide empirical evidence about the effect of working capital on profitability and to analyze the role of the business environment as a factor to strengthen and weaken the effect of working capital on profitability. The population of this study was all Indonesian public companies except those from the financial sector. Purposive sampling techniques were done to select 74 companies in the period of 2014-2016. The data consisted of 222 observations and was analyzed in a descriptive manner. Inferential techniques were also used by implementing the Structural Equation Modeling (SEM) with Partial Least Square (PLS) based on variance. This study found that the amount of working capital had a significant effect on the increasing profitability and the business environment was not a significant moderation of the effect of working capital on profitability.