The Effect of Working Capital Management on Profitability: Evidence from Malaysian Construction Firms

Abstract

Working capital management is an essential part of a sound business. The main objective of this research is to investigate the effect of working capital management on profitability. The regression analysis was carried out on a panel sample of 30 construction firms listed on Bursa Malaysia over a five-year period from 2015 to 2019. The findings suggest that there is a significant positive relationship between Days Inventory Outstanding (DIO) and Gross Operating Profit (GOP) as well as a significant negative relationship between Days Payables Outstanding (DPO) and GOP. Thus, firms can maximise their profitability by maintaining higher inventory level and paying off creditors in a shorter time frame.