The impact of working capital management on profitability of large firms in Serbia

Abstract

Short term firms' decisions about working capital influence the firms value and profitability. This study aims to find new empirical evidence of the influence of managing working capital on profitability, measured by ROA, with application to 367 large non-financial firms in Serbia during a four-year period (2016-2019) using panel-corrected standard error model. The results show that after controlling the characteristics of the firm and macroeconomic conditions, working capital management has statistically significant and non linear influence to firm profitability. This suggests the existence of an optimal level of net working capital of analysed firms, while optimal level working capital has positive and above optimal level working capital has negative effects on the firms' profitability.