Working capital management, operational efficiency and firm performance: A comparative analysis on manufacturing and service companies

The financial crises that emerged in the 20th century have brought the importance of organizational resources, and particularly the importance of Working Capital Management ("WCM") which carries a direct connection with firms' operational efficiency, to the forefront of capital markets. In this research thesis, the impacts of the operational efficiency, in terms of Cash Conversion Cycle ("CCC") which is a highly comprehensive measure of both operational efficiency and WCM, on firm performance are reviewed and evaluated by using the panel data. In addition to that, impacts of sub-parameters of CCC, namely Days of Inventory Outstanding, Days of Payables Outstanding, Days of Sales Outstanding, on firm performance are also reviewed and evaluated as part of this thesis. As a result of the study, it has been found that the CCC has a significant negative impact on all of the three measures, i.e. operational profit, operating cash flow, earning before interests and taxes; whereas, size of a firm has a positive and significant impact on all of the abovementioned performance measures. Keywords: Working capital management, operational efficiency, profitability, cash conversion cycle, manufacturing sector, service sector.