Description
Title: Operating capital and cash holdings’ effects on firm profitability
Abstract: This study examines how operating capital affects a firm’s profitability in China’s manufacturing industry. Using the ordinary least square (OLS), fixed effect (FE), and generalized method of moments (GMM) regression techniques, the study examines whether operating capital develops a non-linear relationship with firm profitability. According to the research, profitable firms with less financial constraint have a significant negative impact on positive operating capital. On the other hand, in financially constrained firms, negative operating capital has a significant positive impact on the firm’s profitability. Additionally, we discover that while constrained firms design an efficient level of operating capital by holding negative operating capital and positive cash, less constrained firms do so by holding positive operating capital and negative cash. We also determine the ideal operating capital level to raise the firm’s profitability. In general, we draw the conclusion that a company can design an effective operating capital level by exchanging cash for non-cash assets.
Keywords: operating capital; cash holding; financial constrained firms; less-constrained firms
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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