Effects of Working Capital Management on Small and Medium...

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1743-9132.htm IJMF 3,2 Effects of working capital management on SME proï ¬ tability  ´  ´ Pedro Juan GarcÄ ±a-Teruel and Pedro MartÄ ±nez-Solano Deptartment of Management and Finance, Faculty of Economy and Business, University of Murcia, Murcia, Spain Abstract Purpose – The object of the research presented in this paper is to provide empirical evidence on the effects of working capital management on the proï ¬ tability of a sample of small and medium-sized Spanish ï ¬ rms. 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†¦show more content†¦Most of these companies’ assets are in the form of current assets. Also, current liabilities are one of their main sources of external ï ¬ nance because they encounter difï ¬ culties in obtaining funding in the long-term capital markets (Petersen and Rajan, 1997) and the ï ¬ nancing constraints that they face (Whited, 1992; Fazzari and Petersen, 1993). In this respect, Elliehausen and Wolken (1993), Petersen and Rajan (1997) and Danielson and Scott (2000) show that small and medium-sized US ï ¬ rms use vendor ï ¬ nancing w hen they have run out of debt. Thus, efï ¬ cient working capital management is particularly important for smaller companies (Peel and Wilson, 1996). In this context, the objective of the current work is to provide empirical evidence about the effects of working capital management on proï ¬ tability for a panel made up of 8,872 small to medium-sized enterprises (SMEs) during the period 1996 to 2002. This work contributes to the literature in two ways. First, no such evidence exists for the case of SMEs in earlier studies. A sample of Spanish SMEs was studied that operate within the so-called continental model, which is characterized by its less developed capital markets (La Porta et al., 1997), and by the fact that most resources are channeled through ï ¬ nancial intermediaries  ´ (Pampillon, 2000). All this suggests that Spanish SMEs have fewer alternative sources of external ï ¬ nance available,Show MoreRelatedBusiness Management : The Financial Manager Essay1277 Words   |  6 Pagesreturn to the enterprise owner(s). 3) Dividend Policy: The financial manager is responsible for deciding the dividend policy of the enterprise. 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