Working capital management and firms’ performance in emerging market: The case of Vietnam

This study is to investigate the impact of working capital management on firm profit for listed firms on Ho chi minh stock exchange, Vietnam. Using the data of 210 listed firms over 2011-2015, the empirical results show that both proxies for working capital management – cash conversion cycle and working capital coverage ratio – are statistically negatively related to firm profits. These findings indicate that working capital management does have an effect on firm profit, where a reduction in cash conversion cycle or in working capital coverage ratio results in an increase in firm profit. Furthermore, components of working capital management comprising of receivables collection period and inventory conversion period show a significantly negative effect on firm profits, while the payables deferral period indicates a negative but not statistically significant impact on firm profit. These findings imply that firm managers should pay more attention to working capital management as a way to increase firm performance.