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Efficiency of working capital and corporate profitability: Empirical evidence

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Efficiency of working capital and corporate profitability:

Empirical evidence

Jian Chen (SoB, Shangai, China)

Tian Wang (SoB, Shangai, China)
Wu Li (SoB, Shangai, China)

Abstract
This paper focuses on the financial management policies related to SMEs' short-term
assets and liabilities to identify the optimal size to improve profitability and reduce the
risk of financial difficulties. Starting from this assumption, this contribution analyses the
link between working capital management, liquidity and performance of small and me-
dium-sized enterprises. The analysis starts from the study of the literature to get to ex-
plore the main working capital variables that have an impact on the profitability of com-
panies. The results show that liquidity and company size significantly affect its business
performance. The inefficient management of this variable is the first cause of financial
instability due to the financial constraints that characterise smaller companies.

Keywords: Working Capital, Performance, Size, Financial Distress

© EAF - All right reserved 2020

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