The effect of working capital management on the profitability of the textile firms: Evidence from Fragile Five countries

In this study, the effect of working capital variables on financial performance was examined with a sample consisting of companies operating in the textile sector in Brazil, Indonesia, Turkey and India within the Fragile Five grouping. During the 2010-2020 working period, 185 companies with balance sheets and income statements were included in the analysis as a sample. The financial data between these years is the annual data on the financial statements of the companies. In the estimation of the coefficients of the panel regression models determined in this study, the Driscoll-Kraay estimator, which is resistant to the problems of unobserved heterogeneity, autocorrelation, varying variance and cross-section dependence, was used. ROA and Tobin's Q metrics are based on financial performance. Variables such as accounts receivable period, inventory holding period, accounts payable period and cash conversion period , which are frequently used in the working capital indicator, are included in the regression models as well as firm-level control variables such as firm size, financial leverage, sales growth and liquidity level. When the panel data analysis estimation results are evaluated in general, it can be stated that the effect of working capital management on financial performance differs significantly according to the selected performance variable. In addition, it was observed that the connection between working capital variables and financial performance variables tended to change when the main sample was divided into sub-samples. When all these findings are evaluated together, it is concluded that a successful and effective working capital management in the textile sector depends on the economic conditions between countries, the differences in capital markets, the development of financial markets, the consideration of differences in terms of daily working habits and the evaluation of each element that makes up working capital separately. Keywords: Working Capital and Management, Profitability, Firm Performance, Fragile Five, Performance Measurement Criteria, Driscoll-Kraay, Textile.