Managing Optimal Working Capital and Corporate Performance: Evidence from Vietnam

Abstract

This paper examined the impact of working capital management (WCM) on corporate performance (CP) in Vietnam. We considered whether there exists an optimal cash conversion cycle (CCC), an optimal net trade cycle (NTC) and how WCM affects CP. We also considered the effect of WCM on CP under financial constraints. This research uses the GLS regression method with research data from listed companies on Vietnam’s stock market from 2009 to 2018, with 5383 business observations in ten years. Initially, this study discovered that CCC and NTC were statistically significant and inversely related to corporate performance (measured by ROA and Tobin's q). However, when continuing to use quadratic functions to analyze data, the study discovered that optimal CCC and NTC have not a linear but an inverted U shape instead. Research results have determined the level of optimal CCC, and NTC affecting CP (measured by ROA); though it was not meaningful when CP is measured by Tobin's q. WCM was also considered in the case of companies with limited financial conditions.