The idea that working capital management impacts profitability and risk of a company is generally accepted and in last 10-15 years has acquired a substantial interest. Accordingly, from the aspect of the measure of efficiency of working capital management, the objective of this paper is to evaluate working capital management impact on profitability of Croatian software companies. This impact was examined using descriptive and correlation as well as panel regression analysis for six-year period (2008-2013). The results show that after controlling for characteristics of the company and macroeconomic conditions working capital management significantly affects the profitability of Croatian software firms. Moreover, the results imply the existence of a nonlinear, concave quadratic relationship between the net working capital and return on assets. This suggest the existence of an optimal level of net working capital that balances costs and benefits and maximizes profitability of analysed companies.

Abstract

Considering the theoretical findings and the empirically determined relevance of working capital management (WCM), the paper focuses on identifying the WCM determinants of manufacturing, trade, and information and communication companies in Croatia. The time horizon of the analysis ranges from the year 2008 to the year 2015, and the final sample consists of 19,355 companies or 116,002 firm-year observations. In addition to the methods of descriptive statistics, the Kruskal-Wallis test, Dunn’s post hoc test, and panel regression analysis are used as methods of inferential statistics. The results of identifying the determinants of WCM indicate that WCM in the previous year, profitability, and financial constraints significantly positively impact working capital cycles, thus promoting conservative WCM. In contrast, size, growth, fixed investment, annual real GDP growth, and industry indicators were significantly negative predictors of the two WCM indicators used, the cash conversion cycle (CCC) and the net trade cycle (NTC). Accordingly, the latter stimulates aggressive WCM. Given the significantly positive effect of an aggressive WCM strategy on profitability, together with the results of the test of WCM determinants, it is recommended that the firms studied to use these determinants to generally manage net operating working capital in a narrower sense more aggressively and achieve its target values.

In this paper we first present some developed theories of financing that firms might accord with in their development stages. The framework, assumptions and predictions of the capital structure of firms in each theory is shown. Afterwards, crowdfunding, as a fairly new source of financing that is increasing significance, is described and is differentiated on the basis of the type of return on investment for the outside investors. In recent literature there have been models that introduce crowdfunding in the framework of financing firms through their life cycle stages. We point the difficulty of encompassing crowdfunding in the mentioned models because of characteristics that are unique to it from the perspective of the investor and the firm. While it is not surprising that crowdfunding is used in development stages, these characteristics make it difficult to construct a model of financing firms that has traditional means of financing and crowdfunding.

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