Does Working Capital Management Work?

Abstract: The purpose of this study is to explore if and how working capital management impacts profitability in Swedish listed non-financial firms. This study is quantitative in nature and therefore naturally employs a deductive and positivistic approach to fulfil its defined purpose. A strongly balanced panel data set is collected using Thomson Reuters Datastream as the main source with the primary statistical method used being an extension of OLS, namely fixed effects. No established theoretical framework exists on working capital management. Instead, capital structure theory is elaborated upon and its implications for working capital management are derived and used to develop hypotheses. The sample consists of 254 Swedish firms listed on the Stockholm Stock Exchange between 2012 - 2018 resulting in 1,778 observed firm year observations. The cash conversion cycle is found to significantly impact profitability of Swedish, listed, non-financial firms. Additionally, all components of the cash conversion cycle are also found to significantly impact profitability. The findings of our study are largely in line with those of previous research as well as the theoretical background. A significant relationship is established between working capital management and profitability.