Manufacturing exports, profitability and working capital

Article type: Research Article

Authors: Habib, Ashfaq | Huang, Xiaoxia^{; *}

Affiliations: Donlinks School of Economics and Management, University of Science and Technology Beijing, China

Correspondence: [*] Corresponding author: Dr. Xiaoxia Huang, Dongling School of Economics and Management, University of Science and Technology Beijing, China. Tel.: +86 1082376260; E-mail: hxiaoxia @manage.ustb.edu.cn.

Abstract: This study examines the effect of working capital (WC) on the profitability of manufacturing firms engaged in exports. Over the 2009–2015 time periods, the data gathered from 270 such firms in Pakistan ascertain a curvilinear relation between profitability and WC. Namely the generalized method of movement suggests an optimum working capital for manufacturing firms, estimated at about eight percent of sales revenue. Moreover, the exports’ destination region also affects the association between working capital and profitability, as exports to stable economies sustain working capital, while exports to less-stable economies yield a lower WC. Despite the study’s qualifications, exporting is a vital business component that affects a manufacturing firm’s working capital, with multiple implications for business practice and research.

Keywords: Working capital, profitability, exports performance, optimal

DOI: 10.3233/HSM-17224

Journal: Human Systems Management, vol. 37, no. 3, pp. 299-309, 2018