The working capital management: The determinants and the effect on profitability: evidence from Portuguese SME's

• Main Author: Russo, João Filipe Tavares Batista
• Publication Date: 2013
• Format: Master thesis
• Language: eng
• Source: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Download full: http://hdl.handle.net/10071/8554
• topic: Working capital; Determinants; Rentabilidade -- Profitability; SMEs; Fundo maneio; Determinantes; PMEs

Through an empirical analysis, the study objectives pass to evidence the determinants of working capital and conversely, analyze the relationship between this type of management and the SMEs’ profitability, as well to find evidence that the Portuguese GDP and different industries influence the management of working capital. The sample considers the period 2009-2011 and consists in 1192 Portuguese SMEs. Controlling for possible problems of unobservable heterogeneity and endogeneity, the results suggest that the capacity to generate internal funds and leverage are the determinants of working capital. The capacity to generate internal funds is negatively related with this type of management, suggesting that companies manage working capital efficiently when they have greater capacity to generate cash flows. Leverage is negatively related with this type of management, suggesting that when firms increase their level of debt, they manage efficiently the working capital, to not increase even more the financial needs. Unlike most previous studies, it was found no relationship between working capital management and the SMEs’ profitability, which was confirmed by robustness tests, suggesting that this type of management does not have a significant role in working capital management. The results also suggest that the Portuguese GDP has no influence on the management of working capital, and it was confirmed that this type of management varies between different industries in this study.