Skip to main content

Working capital level influence on SME profitability

Afrifa, G.A., Padachi, K. (2016) Working capital level influence on SME profitability. Journal of Small Business and Enterprise Development, 23 (1). pp. 44-63. ISSN 1462-6004. (doi:10.1108/JSBED-01-2014-0014) (KAR id:66499)

PDF Author's Accepted Manuscript
Language: English
Download this file
(PDF/386kB)
[thumbnail of 9WORKING CAPITAL LEVEL INFLUENCE ON SME PROFITABIILTY %28JSBED%29R.pdf]
Preview
Request a format suitable for use with assistive technology e.g. a screenreader
XML Word Processing Document (DOCX) Author's Accepted Manuscript
Language: English

Restricted to Repository staff only
[thumbnail of 9WORKING CAPITAL LEVEL INFLUENCE ON SME PROFITABIILTY (JSBED)R.docx]
Official URL:
http://dx.doi.org/10.1108/JSBED-01-2014-0014

Abstract

The purpose of this paper is to report the results of an investigation of the relationship between working capital level, measured by the cash conversion cycle (CCC) and profitability of small and medium enterprises (SMEs). Design/methodology/approach – The paper employs panel data regression analysis on a sample of 160 Alternative Investment Market (AIM)-listed SMEs for the period from 2005 to 2010. Findings – The empirical results show that there is a concave relationship between working capital level and firm profitability and that there is an optimal working capital level at which firms’ profitability is maximised. Furthermore, an examination as to whether or not deviations from the optimal working capital level reduce firm profitability indicate that deviations above or below the optimum decrease profitability. Research limitations/implications – The sample is limited to AIM-listed SMEs, and therefore the findings cannot be generalised to all firms. Practical implications – Overall, the evidence suggests that firms should strive and attain the optimal working capital level in order to maximise their profitability. Originality/value – The results are of importance to both SMEs and policy makers providing insight into the nature of CCC and its relationship to SMEs profitability.

Item Type: Article
DOI/Identification number: 10.1108/JSBED-01-2014-0014
Uncontrolled keywords: Small and medium enterprises, Cash conversion cycle, Profitability, Alternative investment market
Subjects: H Social Sciences
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Tracey Pemble
Date Deposited: 21 Mar 2018 12:38 UTC
Last Modified: 17 Aug 2022 12:22 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/66499 (The current URI for this page, for reference purposes)

University of Kent Author Information

  • Depositors only (login required):

Total unique views for this document in KAR since July 2020. For more details click on the image.