Working Capital Management and Corporate Profitability: Empirical Evidence from Vietnam


This paper examines the relationship between working capital management and corporate profitability of Vietnamese listed firms. We propose a different interpretation of the empirical evidence that takes into account the dependency of collection and payment decisions. This helps establish the causal relationship between working capital management and firm profitability, which made the interpretation of the empirical results more meaningful and consistent with the real practice of firms. The analysis results based on a sample of 374 Vietnamese listed firms in the period from 2008 to 2014 show that working capital management positively affects the performance of Vietnamese listed companies. However, the results also indicate that Vietnamese firms do not intentionally use trade credit policy to enhance firms’ performance and the observed relationship between trade credit and profitability, though significant, is just by coincidence.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • [1] Abusayed, B., 2012. Working Capital Management and Firms’ Performance in Emerging Markets: The Case of Jordan. International Journal of Managerial Finance, 8(2), pp.155-179.

  • [2] Almeida, J.R., Eid, Jr, W., 2014. Access to Finance, Working Capital Management and Company Value: Evidence from Brazilian Companies Listed on BM&FBOVESPA. Journal of Business Research, 67, pp.924-934.

  • [3] Baños-Caballero, S., García-Teruel, P.J. Martinez- Solano, P., 2014. Working Capital Management, Corporate Performance, and Financial Constraints. Journal of Business Research, 67, pp.332-338.

  • [4] Blinder, A.S., Maccini, L.J., 1991. The Resurgence of Inventory Research: What Have We Learned?. Journal of Economic Surveys, 5, pp.291-328.

  • [5] Deloof, M., 2003. Does Working Capital Management Affect Profitability of Belgian Firms?. Journal of Business Finance & Accounting 30, pp.573-587.

  • [6] Emery, G., 1984. A Pure Financial Explanation for Trade Credit. Journal of Financial and Quantitative Analysis, 19, pp.271-285.

  • [7] Enqvist, J., Graham, M., Nikkinen, J., 2014. The Impact of Working Capital Management on Firm Profitability in Different Business Cycle: Evidence from Finland. Research in International Business and Finance, 32, pp.36-49.

  • [8] Garcia-Teruel, P.J., Martinez-Solano, P., 2007. Effects of Working Capital Management on SME Profitability. International Journal of Managerial Finance, 3(2), pp.164-177.

  • [9] Gill, A., Biger, N., Mathur, N., 2010. The Relationship Between Working Capital Management and Profitability: Evidence from the United States. Business Economics Journal, 10, pp.1-9.

  • [10] Hager, H.C., 1976. Cash Management and the Cash Conversion Cycle. Management Accounting, 57(9), pp.19-21.

  • [11] Jose, M.L., Lancaster, C., Stevens, J.L., 1996. Corporate Return and Cash Conversion Cycles. Journal of Economics and Finance, 20, pp.33-46.

  • [12] Knauer, T., Wohrmann, A., 2013. Working Capital Management and Firm Profitability. Journal of Management Control, 4, pp.77-87.

  • [13] Kim, Y.H., Chung, K.H., 1990. An Integrated Evaluation of Investment in Inventory and Credit, A Cash Flow Approach. Journal of Business Finance & Accounting, 17, pp.381-390.

  • [14] Lazaridis, I., Tryfonidis, D., 2006. Relationship Between Working Capital Management and Profitability of Listed Companies in the Athens Stock Exchange. Journal of Financial Management and Analysis, 19, pp.26-35.

  • [15] Lee, Y.W., Stowe, J.D., 1993. Product Risk, Asymmetric Information, and Trade Credit, Journal of Financial and Quantitative Analysis, 28, pp.285-300.

  • [16] Mun, S.G, Jang, S.C., 2015. Working Capital, Cash Holding, and Profitability of Restaurant Firms. International Journal of Hospitality Management, 48, pp.1-11.

  • [17] Myers, S.C., Majluf, N.S., 1984. Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have. Journal of Financial Economics, 13, pp.187-221.

  • [18] Ng, C.K., Smith, J.K., Smith, R.L., 1999. Evidence on the Determinants of Credit Terms Used in Interfirm Trade. Journal of Finance, 54, pp.1109-1129.

  • [19] Nguyen, A., Nguyen, T., 2018. Free Cash Flow And Corporate Profitability in Emerging Economies: Empirical Evidence from Vietnam. Economics Bulletin, 38(1), pp.211-220.

  • [20] O’Brien, R.M., 2007. A Caution Regarding the Rules of Thumb for Variance Inflation Factors. Quality & Quantity, 41, pp.673-690.

  • [21] Opler, T., Pinkowitz, L., Stulz, R., Williamson, R., 1999. The Determinants and Implications of Corporate Cash Holdings. Journal of Financial Economics, 53, pp.3-46.

  • [22] Petersen, M., Rajan, R., 1997. Trade Credit: Theories and Evidence. Review of Financial Studies, 10, pp.661-691.

  • [23] Raheman, A., Nasr, M., 2007. Working Capital Management and Profitability: Case of Pakistani Firms. International Review of Business Research Papers, 3, pp.279-300.

  • [24] Sagan, J., 1955. Toward a Theory of Working Capital Management. Journal of Finance, 10(2), pp.121-129.

  • [25] Schiff, M., Lieber, Z., 1974. A Model for the Integration of Credit and Inventory Management. Journal of Finance, 29, pp.133-140.

  • [26] Shin, H.H., Soenen, L., 1998. Efficiency of Working Capital and Corporate Profitability. Financial Practice & Education, 8, pp.37-45.

  • [27] The International Monetary Fund, 2017. IMF Country Report No. 17/191: Vietnam, Selected Issues. Retrieved January 15, 2018 from CR/2017/cr17191.ashx

  • [28] Wang, Y.J., 2002. Liquidity Management, Operating Performance, and Corporate Value: Evidence from Japan and Taiwan. Journal of Multinational Financial Management, 12, pp.159-169.


Journal + Issues