Effects of working capital management on SME profitability

Purpose The object of the research presented in this paper is to provide empirical evidence on the effects of working capital management on the profitability of a sample of small and medium‐sized Spanish firms. Design/methodology/approach The authors have collected a panel of 8,872 small to medium‐sized enterprises (SMEs) covering the period 1996‐2002. The authors tested the effects of working capital management on SME profitability using the panel data methodology. Findings The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash…