Effects of Working Capital Management on SME Profitability

Abstract:     
The objective of the research presented here is to provide empirical evidence about the effects of working capital management on the profitability of a sample of small and medium-sized Spanish firms. With this in mind, we collected a panel of 8,872 SMEs covering the period 1996-2002. The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their firm's number of days accounts receivable and inventories. Equally, shortening the cash conversion cycle also improves the firm's profitability.

Number of Pages in PDF File: 22

Keywords: Working capital, profitability, SMEs

JEL Classification: G3, G32

working papers series