Working Capital as a Determinant of Corporate Profitability

This study examines the interaction of corporate profitability, working capital management and firm characteristics. Advanced quantitative techniques, such as dynamic panel estimation and median regression, are used to test the underlying relations. The findings indicate that both size and debt ratio are important determinants of corporate profitability and that profitable firms and losing firms tend to have different determinants of profitability. Several findings indicate that the effects of the components of working capital on profitability depend on firm characteristics such as the state of working capital (surplus/deficit) and where the firm lies in the profitability league.