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The Impact of Working Capital Management on Firm Profitability in Different Business Cycles: Evidence from Finland

40 Pages Posted: 28 Mar 2011 Last revised: 30 Aug 2013

Julius Enqvist

SEB - Global Transaction Services

Michael Graham

Stockholm University - School of Business

Jussi Nikkinen

University of Vaasa - Department of Accounting and Finance

Date Written: August 30, 2013

Abstract

The recent economic downturn of 2007-2008 has brought renewed focus on working capital policies. In this paper we examine the role of business cycles on the working capital-profitability relationship using a sample of Finnish listed companies over an 18 year period. We find the impact of business cycle on the working capital-profitability relationship is more pronounced in economic downturns relative to economic booms. We further show that the significance of efficient inventory management and accounts receivables conversion periods increase during periods of economic downturns. Our results demonstrate that active working capital management matters and, thus, should be included in firms’ financial planning.

Keywords: Working capital, Business cycles, Profitability

JEL Classification: G30, G31, G32

Suggested Citation

Enqvist, Julius and Graham, Michael and Nikkinen, Jussi, The Impact of Working Capital Management on Firm Profitability in Different Business Cycles: Evidence from Finland (August 30, 2013). Available at SSRN: https://ssrn.com/abstract=1794802 or http://dx.doi.org/10.2139/ssrn.1794802

Julius Enqvist

SEB - Global Transaction Services ( email )

Unioninkatu 30
P.O. Box 630
00101 Helsinki
Finland

Michael Graham (Contact Author)

Stockholm University - School of Business ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden
+ 46 8 674 7451 (Phone)

HOME PAGE: www.fek.su.se

Jussi Nikkinen

University of Vaasa - Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland
+358 6 3248541 (Phone)

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