Relationship between firm profitability and working capital: An econometric analysis in the ise manufacturing sector

The impact of effective management of working capital, which is an important determinant of firm performance and very important on competitiveness, on firm profitability is a subject that has been discussed for a long time in academia. In the researches, it is concluded that the cash conversion is widely preferred as an indicator of working capital efficiency and that the relationship between working capital and profitability is negative or positive. This separation seen in the research literature obscures the nature of the relationship in question. In this research, it is aimed to determine the working capital management efficiency levels of firms by means of the index method, which is used for the first time in Turkey, different from the methods used in the literature, and to reveal the relationship between their profitability. For this purpose, panel data analysis of was carried out 127 manufacturing firms operating in Borsa Istanbul between 2009-2018 over a quarter-period data set. According to the findings obtained from the analysis, it was determined that the BIST manufacturing sector's ability to create sales using current assets was the lowest in the first quarter of 2017 and the highest in the fourth quarter of 2017. It was determined that the first quarter of 2013 was the period when the sector was most successful in effectively managing individual sub-account groups. It was observed that BIST manufacturing companies performed an effective working capital management throughout the periods examined within the scope of the research. In the results obtained from the comparative analysis of the working capital efficiency levels of manufacturing firms showed that 45% of firms had a higher success in working capital management than the sector, 3% were equal to the sector and 51% performed below the sector. In the results of the analysis, it was determined that the working capital efficiency index is the determinant of firm's profitability and the cash conversion period has no effect on firm's profitability. It has been observed that working capital efficiency significantly affects the profitability of the firm. The use of a different efficiency indicator from previous research and use of heterogeneous panel data models are unique aspects of this research. This research is important as a guideline for companies can use their efficiency index indicators as an alternative activity tool in the working capital management process. Further, it is hoped that the findings obtained from the research will be one of the main data sources to which working capital management polic makers will apply.