Working Capital and Profitability in Manufacturing Firms in Malaysia: An Empirical Study

Working capital is an important area of finance that has not been studied as widely as it deserves. This study aims to contribute to the literature on working capital by analyzing its relationship with profitability. This study uses a sample of 160 manufacturing firms in Malaysia, and uses the ordinary least squares (OLS) regression technique, to achieve this aim. The results of this study present negative relationships between working capital (and its components) with profitability. Except for the negative relationship of payables with profitability, the other relationships follow general expectations based on popular finance theory. The results of this study (in comparison with other studies) show that the relationship of working capital (and its components) with profitability may not be as easy as it seems and may be dependent on other influences such as economic policies.