Abstract： Working capital management is important part in firm financial management decision. An optimal working capital management is expected to contribute positively to the creation of firm value. To reach optimal working capital management firm manager should control the trade off between profitability and liquidity accurately. The purpose of this study is to investigate the relationship between working capital management and firm profitability. Cash conversion cycle is used as measure of working capital management. This study is used panel data of 1628 firm-year for the period of 1996-2006 that consist of six different economic sectors which are listed in Bursa Malaysia. The coefficient results of Pooled OLS regression analysis provide a strong negative significant relationship between cash conversion cycle and firm profitability. This reveals that reducing cash conversion period results to profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till accomplish optimal level.
Keywords: Working Capital Management, Cash Conversion Cycle, Profitability and Liquidity
INTRODUCTION
Working capital is an important issue during financial decision making since its being a part of investment in asset that requires appropriate financing investment. However, working capital always being disregard in financial decision making since it involve investment and financing in short term period. Further, also act as a restrain in financial performance, since it does not contribute to return on equity (Sanger, 2001). Though, it should be critical for to a firm to sustain their short term investment since it will ensure the ability of firm in longer period. RFID的超市手持预结账付款终端解决方案+RFID读卡器
The crucial part in managing working capital is required maintaining its liquidity in day-to-day operation to ensure it's smooth running and meets its obligation (Eljelly, 2004). Yet, this is not a simple task since managers must make sure that business operation is running in efficient and profitable manner. There are the possibilities of mismatch of current asset and current liability during this process. If this happens and firm's manager cannot manage it properly then it will affect firm's growth and profitability. This will further lead to financial distress and finally firms can go bankrupt. 2620
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