Effect of Working Capital Management on the Profitability of Steel Companies on Vietnam Stock Exchanges

Abstract

This study examines the influence of working capital management (WCM) factors on the profitability of steel companies listed on the Stock Exchange of Vietnam. Data was collected from audited financial statements of companies for a period of 10 years, from 2010 to 2019. The number of samples eligible for research is 20 out of 26 companies, which is equivalent to 76.9%. With the help of dedicated software Stata version 14, the impact determination of WCM (through 8 independent variables: DIO, DPO, DSO, CCC, SIZ, CR, LEV, GRO) to the firm's profitability (through the dependent variable) is performed through multivariate regression models. Research results from companies in the steel industry in Vietnam during this period indicate that WCM has a strong impact on the profitability of businesses. Among 8 factors affecting the profitability of steel enterprises, factors DPO, DIO, DSO, CR, SIZ, GRO have a positive impact, boosting profitability; 2 factors CCC and LEV have a negative impact on profitability; in which, the effect of CCC is negligible. This conclusion is almost in contrast to many previously published studies due to the specifics of the industry as well as the different stages of economic development associated with the economic management policies of the State.

Impact of Working Capital Management on Firm Performance in Different Business Cycles: Evidence from Vietnam

“…Debt utilization (LEV) has a negative relationship with ROA and is statistically significant. These results are consistent with those of studies done previously in other countries, such as the study of Deloof (2003); Ionnis and Lazaridis (2006); Garcia-Turuel and MartinezSolano (2007); Dong (2010), Enqvist et al (2014), Mielcarz et al (2018), Pham et al (2020), Oseifuah (2018) and Ngwenya (2012), Pattiruhu and Paais (2020) show that ROA has a positive and significant impact on dividend policy. 4 above is the results of model 2 regression, with dependent variable is GOP.…”

Working capital management and firm’s profitability: Evidence from Czech certified firms from the EFQM excellence model

“…Musau (2015), Fernández-López et al (2020, Serrasqueiro (2014), and Jayarathne (2014) investigated a negative relationship between the DIO and firm's profitability. On the contrary, Pham et al (2020), Kusuma andBachtiar (2018), andTahir et al (2016) found a positive relationship between the variables. On the basis of previous studies, we propose the following hypothesis about the DIO: H 2A : There is a significant relationship between DIO and firm profitability.…”

“…In this way, the firms rise their WC and free cash flow. Kayani et al (2020), Pham et al (2020), Musau (2015), and Mathuva (2012) found a positive impact of DPO on firms' profitability. On the other hand, Moussa (2018), Javid and Dalian (2014), and Serrasqueiro (2014) found a negative impact of DPO on firm profitability.…”

“…In previous literature, many proxies have been considered for the profitability of firms including return on asset (ROA), return on capital employed (ROCE), return on equity (ROE), and net operating income (NOI). There are a number of previous studies that described the impact of WCM on firm profitability by employing ROA as a proxy of profitability (Fernández-López et al, 2020;Olaoye & Okunade, 2020;Pham et al, 2020). There are a few studies that preferred ROCE as a proxy to measure the profitability of a firm such as Edi et al (2010);Sharma et al (2020); Högerle et al (2020).…”

“…However, various researchers used all the components of WCM to investigate the relationship between WCM and firm profitability. (Fernández-López et al, 2020;Högerle et al, 2020;Kayani et al, 2020;Pham et al, 2020;Tahir et al, 2016) In the following, the previous literature that has recently studied the impact of elements of WCM on firms' profitability is synthesized in a review to suggest the research hypotheses.…”