Thus, a firm with high liquidity of working capital will have low risk and therefore low profitability. Debt There are two ways to measure leverage that is used in the literature on the relationship between firm profitability and WCM. The working capital cycle represents the time difference between the acquisition of raw materials and other inputs, and the receiving of cash from the sale of the finished goods. Smaller percentages were found by Garcia-Teruel and Martinez , Karaduman et al. Comparable results were found by Deloof and Falope and Ajilore Other reasons for not using accounts payables is the possible loss of goodwill when firms do use their accounts payables and thus paying later.

The results of the crisis period will also discuss the sign and impact of the WCM parts during crisis years, but will only be compared to the results of the non-crisis period of this study. Comparable results were found by Deloof and Falope and Ajilore For robustness both these dependent variables will be used. The D-W statistics values lie between 1. To proof this effect, the following hypothesis needs to be tested: Working capital management is vital for a firm, especially for manufacturing, trading and distribution firms, because in these firms WCM directly affect the profitability and liquidity. Also contradicting evidence is found by Mathuva with the management of account payables.

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The common rule of thumb is that a VIF-score of 5 or higher means that there is a high multicollinearity. Short-term debt Loans that have maturities of shorter than one year.

Journal of Financial Economics, This saves a lot of costs concerning inventory stocking. This means that the impact of inventory level on the profitability of a firm is higher during crisis periods. The authors Makridakis and Wheelwright consider D-W value masster 1.

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The first reason is that public listed firms in The Netherlands have a high reputation concerning the quality of their products, because most of these firms have much invested in exxellent goodwill and most of these firms are relatively old. The unavailability of credit was the main problem for financially constrained firms, because they had to cut more investment, technology, marketing, and employment relative to financially unconstrained firms during the crisis Campello et al.


Skip to main content. This chapter started with the introduction of the basics of working capital. The literature offers various theories to explain this decision. The highly comparable results of the sample of the article of Deloof is even more significant, because Belgium has very similar macro-economic conditions compared to The Netherlands, which further indicate the validity of the sample of this study.

Since the aid to financially constraint customers is beneficial for the profitability of a firm, the following hypotheses are expected, concerning accounts receivables during a crisis period: Because of these constraints, financially utwenye firms have to look at alternative sources for their financial needs. Shin and Soenen also used a second measurement of excrllent profitability, which is gross operating profit before depreciation divided by net sales, but this measurement is not used by any other researcher.

Most of the above mentioned studies found evidence that trade credit can thwsis seen as substitute to a short-term bank loan; this maste definitely the case during a crisis. There is also contradicting evidence found towards this assumption in Japan.

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They also found that account payables are negatively related to profitability, which is in line with Deloof The total firm-years observations are approximately The negative side of granting trade credit and keeping inventories is that money is locked up in working capital Deloof, A smaller percentage was found by Garcia-Teruel and Martinez- Solanowho studied smaller to medium enterprises and found for these firms a percentage of As larger firms increase their role as a financial intermediate during periods of a crisis, they sell more financial resources along with their products Meltzer, The VIF scores can be found between the [ ].


The regression analyses that will be used in this study are based on the following equations: It was very likely that these loans could never been paid back. Also the combined parts of WCM will be studied in the form of the cash conversion cycle. Receiving such a trade credit from a supplier allows a firm to assess the quality of the products bought, and can be an inexpensive and flexible source of financing for the firm Deloof, ; and Raheman and Nasr, This is first suggested by Smith inwhere he argued that suppliers can permit customers to assess the quality of the products before payment, through granting trade credit terms.

These results are somewhat thrsis than the findings of Deloof of respectively 54,64 days and 51,44 days, Gill et al. Numerous regressions are held for this study, but four most implicating regression models for each regression equation are presented in the tables.

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The non-crisis sample period ranged from to and the crisis period from to and resulted in approximately firm-years. Journal of Financial Management and Analysis, 19 1 utwentd, pp. Failure to pay within the discount period could signal financial distress and it would than merit to monitor the buyer more closely.

Deloof argues that with inventory management there is a trade-off between sales and costs.

The level of WCM is measured with the cash conversion cycle. This will be studied by answering the following question: This is caused by the fact that future sales of this customer are saved this way.