Do Working Capital Decision and Efficiency of Working Capital Management Contribute to the Profitability? Evidence from Bangladesh

Abstract

This study attempts to explore how working capital decision, that is, aggressive investment and finance decision and efficiency of the working capital management (WCM) contribute to the profitability operationalised by gross operating profit (GOP) and return on assets of listed manufacturing firms in Bangladesh. To investigate this relationship, the study has taken into consideration of 468 sample observations from 108 listed firms covering the year from 2013 to 2017. This study finds that aggressive investment and finance decision significantly contribute to the profitability of the firm. Besides, the efficiency of WCM has significant impact on the profitability. In addition, the constructs of efficiency of WCM—that is, days in inventory outstanding, days in sales outstanding—has significant negative impact on the profitability of the firm. Unfortunately, this study finds no significant impact of days in payables outstanding on firm’s profitability.