Prague Economic Papers 2019, 28(3):296-312 | DOI: 10.18267/j.pep.681

The Moderating Impact of Firm Size on the Relationship between Working Capital Management and Profitability

Ilhan Dalcia, Cem Tanovaa, Hasan Ozyapicia, Murad A. Beinb
a Faculty of Business and Economics, Eastern Mediterranean University, Famagusta, Turkey
b Faculty of Economics and Administrative Sciences, Cyprus International University, Turkey

This study investigates whether firm size moderates the relationship between cash conversion cycle and profitability over 8-year period for 285 German non-financial firms. The moderated regression results reveal that the relationship between cash conversion cycle and profitability is moderated by firm size. As the firm size gets smaller and the cash conversion cycle gets longer, the returns on assets decreases. When the firm size gets bigger and the cash conversion cycle gets longer, on the other hand, the returns on assets increases. In this context, reducing the length of cash conversion cycle has a positive impact on profitability for only small and medium-sized firms. Accordingly, this study concludes that small and also medium-sized firms, contrary to big firms, should reduce the length of cash conversion cycle in order to increase profitability.

Keywords: cash conversion cycle, firm size, small firms, profitability, working capital management
JEL classification: M10, M41

Accepted: April 23, 2018; Published: July 10, 2019  Show citation

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Dalci, I., Tanova, C., Ozyapici, H., & Bein, M.A. (2019). The Moderating Impact of Firm Size on the Relationship between Working Capital Management and Profitability. Prague Economic Papers, 28(3), 296-312. doi: 10.18267/j.pep.681
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