Exploring Working Capital Management and Performance of Manufacturing Firms in Indonesia

Abstract

The economic recession in Indonesia at 2020 as impact of the Covid-19 outbreak has affected human life in all aspects. Firms must survive in carrying out their economic activities, including in managing working capital. It is important for managers to manage the use of their funds, especially in times of crisis. This study aims to determine how important role of working capital management (WCM) affects the performance of manufacturing firms in Indonesia. The research will also analyze whether financial constraints have an effect on improving WCM and company performance. WCM is measured by NTS, firm performance is measured by ROE, and financial constraint is measured by cash flow. This study also use variable control it is Size, Lev, CR, AT and Age. All data all data is processed using panel data regression through Eviews software. Sample in this study are manufacturing firms in Indonesia that listed in IDX between 2018-2020. The results show that working capital management has a significant positive effect on the performance of manufacturing firms in Indonesia. For financial constraints it is partially affect the company's performance significantly negative, meanwhile financial constraints negatively moderate the relationship between working capital management and company performance, but not significant. The results of this study could be a useful information for companies to make decisions in managing the company's working capital, especially facing the crisis amid the Covid-19 pandemic.