The Effect of Company Size as a Mediating Variable on the Relationship of Working Capital to Profitability
Working capital is one of the most important asset elements in a company because, without working capital, the company cannot meet its activities. Profitability is the company's ability to generate net income from activities carried out in the accounting period. Furthermore, the company's size, the size of the company can be determined based on total sales, total assets, and the average level of sales. This study aims to examine and analyze the effect of working capital on profitability mediated by company size. By using data from real estate companies listed on the IDX during the 2016-2019 period. The analytical tool in this research is SEM PLS with the application of Warp PLS version 7.0. This research proves that working capital and sales growth can be mediated by company size on profitability. That is in line with the signaling theory, which states that investors will adjust their decisions according to their understanding of the signals given by the company owner.
Keywords: size, working capital, signaling theory, return on assets.
GEROSKI P. A., MACHIN S. J., and WALTERS C. F. Corporate Growth and Profitability. The Journal of Industrial Economics, 1997, 45: 171-189. https://doi.org/10.1111/1467-6451.00042
REY-ARES L., FERNANDEZ-LOPEZ S., and RODEIRO-PAZOS D. Impact of Working Capital Management on Profitability for Spanish Fish Canning Companies. Marine Policy, 2021, 130: 1-10. https://doi.org/10.1016/j.marpol.2021.104583
WIDHIASTUTI S., EKASAPUTRA B., and JAYADI J. Analysis of the Influence of Intellectual Capital, Working Capital, and Leverage in Affecting Profitability and Its Relationship on The Firm Value. Fokbis, 2020, 19(1), 38–53. https://doi.org/10.32639/fokusbisnis.v19i1.614
EBIRINGA O. Effect of Firm Size and Profitability on Corporate Social Disclosures: The Nigerian Oil and Gas Sector in Focus. British Journal of Economics Management & Trade, 2013, 3(4): 563-574. https://doi.org/10.9734/BJEMT/2013/5147
BOISJOLY R. P., CONINE JR T. E., and MCDONALD M. B. Working Capital Management: Financial and Valuation Impacts. Journal of Business Research, 2020, 108: 1-8. https://doi.org/10.1016/j.jbusres.2019.09.025
VAHID T. K., ELHAM G., MOHSEN A. K., and MOHAMMADREZA E. Working Capital Management and Corporate Performance: Evidence from Iranian Companies. Procedia - Social and Behavioral Sciences, 2012, 62: 1313-1318. https://doi.org/10.1016/j.sbspro.2012.09.225
HASSAN T., HASSAN M. K., MOHAMAD S., and MIN C. C. Political Patronage and Firm Performance: Further Evidence from Malaysia. Thunderbird International Business Review, 2012, 54(3): 373-393. https://doi.org/10.1002/tie.21468
RAMEZANI C. A., SOENEN L. A., and JUNG A. Growth, Corporate Profitability, and Shareholder Value Creation. Social Science Research Network, 2001. http://dx.doi.org/10.2139/ssrn.304880
BABALOLA Y. A. The Effect of Firm Size on Firms’ Profitability in Nigeria. Journal of Economics and Sustainable Development, 2013, 4(5): 90-94. https://core.ac.uk/download/pdf/234645888.pdf
KUMAR V. Integrating Theory and Practice in Marketing. Journal of Marketing, 2017, 81(2): 1-7. https://doi.org/10.1509%2Fjm.80.2.1
BERGGRUN L., CARDONA E., and LIZARZABURU E. Extreme Daily Returns and the Cross-Section of Expected Returns: Evidence from Brazil. Journal of Business Research, 2019, 102: 201-211. https://doi.org/10.1016/j.jbusres.2017.07.005
ROSS S. A. The Determination of Financial Structure: The Incentive Signaling Structure. Bell Journal of
Economics, 1977, 8: 23-40. https://doi.org/10.2307/3003485
MYERS S. C., & MAJLUF N. S. Corporate Financing and Investment Decisions when Firms have Information that Investors do not Have. Journal of Financial Economics, 1984, 13(2): 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
DONALDSON G. Corporate Debt Capacity. Harvard University Press, Cambridge, USA, 1961.
JENSEN M. C., & MECKLING W. H. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 1976, 3(4): 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
WASIUZZAMAN S. Working Capital and Firm Value in an Emerging Market. International Journal of Managerial Finance, 2015, 11(1). http://dx.doi.org/10.1108/IJMF-01-2013-0016
ENQVIST J., GRAHAM M., and NIKKINEN J. The Impact of Working Capital Management on Firm Profitability in Different Business Cycles: Evidence from Finland. Research in International Business and Finance, 2014, 32(C): 36-49. 10.1016/j.ribaf.2014.03.005
DANG H. N., VU V. T. T., NGO X. T., and HOANG H. T. V. Study the Impact of Growth, Firm Size, Capital Structure, and Profitability on Enterprise Value: Evidence of Enterprises in Vietnam. Journal of Corporate Accounting and Finance, 2019, 30: 144-160. https://doi.org/10.1002/jcaf.22371
PARK K. Inter-Relationship Between firm Growth and Profitability. International Journal of Hospitality Management, 2011, 30: 1027–1035. https://doi.org/10.1016/j.ijhm.2011.03.009
MAHMOOD J., & MAHMOOD I. Comprehensive Income Disclosure (The Case of US Companies). Cogent Economics & Finance, 2019, 7(1): 1-14. https://doi.org/10.1080/23322039.2019.1674587
DALCI I., TANOVA C., OZYAPICI H., and BEIN M. The Moderating Impact of Firm Size on the Relationship between Working Capital Management and Profitability. Prague Economic Papers, 2019, 28(3): 1-17. http://dx.doi.org/10.18267/j.pep.681
MEGGINSON W. L., & WEISS K. A. Venture Capitalist Certification in Initial Public Offerings. Journal of Finance, 1991, 46(3): 879-903. https://doi.org/10.1111/j.1540-6261.1991.tb03770.x
JAVED H., BAGH T., and RAZZAQ S. Herding Effects, Over Confidence, Availability Bias and Representativeness as Behavioral Determinants of Perceived Investment Performance: An Empirical Evidence from Pakistan Stock Exchange (PSX). Journal of Global Economics, 2017, 6(1): 1-13. https://doi.org/10.4172/2375-4389.1000275
- There are currently no refbacks.