Effects of Working Capital Management on SME Profitability: Evidence from an Emerging Economy

  •  Luca Sensini    
  •  Maria Vazquez    


This paper's main objective was to evaluate the influence of working capital management policies on Argentine agro-industrial firms' profitability. To test our hypotheses, we analyzed a sample of 326 companies selected with a stratified random method based on an economic criterion. The data was collected through a structured questionnaire. From a methodological perspective, we used the individual determinants of working capital (DSO, DSI, DPO and CCC) as independent variables, while EBITDA represented the dependent variable. Additionally, we used leverage as a control variable. To assess the impact of individual determinants on corporate profitability, we used the dynamic panel data methodology. This approach has the advantage of controlling the unobservable effects that can influence profitability and endogeneity problems. We also checked the robustness of our results. The results offer several interesting insights. In particular, the results of the variables (DSI, DPO and CCC) showed a negative relationship with firms' profitability, suggesting that investing in inventory and requesting greater extensions from suppliers leads to additional costs that cannot offset the resulting benefits.

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