The Effect of Working Capital Management on Profitability in Emerging Countries: Evidence from Turkey

This study aims to reveal the tradeoff between working capital components and firm's profitability by using the data of the firms listed on Borsa Istanbul Industry Index in Turkey. Annual data of 41 firms are used for the period 2005-2016 in the study. The working capital components and firm's profitability tradeoff was examined via the fixed effects panel regression model. Dependent variable is defined as return on assets; independent variables are cash conversion cycle, inventory conversion period, and payables deferral period; and control variables are sales growth, the ratio of short-term financial debts to short-term debts, and the ratio of fixed assets to total assets. Findings show the existence of tradeoff working capital management profitability. A negative relationship exists between return on assets and payables deferral period, cash conversion cycle, the ratio of short-term financial debts to short-term debts, and the ratio of fixed assets to total assets while return on assets is positively related to inventory conversion period and sales growth.