The impact of working capital management on the profitability of listed halal food and beverage companies

Abstract

Purpose This study investigated how working capital management (WCM) influences the profitability of listed halal food and beverage companies. Design/methodology/approach The study utilized a sample of 56 listed halal food and beverage companies operating in Indonesia, Malaysia, Saudi Arabia, Pakistan and the United Arab Emirates (UAE). Unbalanced panel data were generated from the Bloomberg database between 2008 and 2021. Besides, the study employed the two-step system generalized method of moments (GMM) technique for the estimation, which can address the models' endogeneity, heteroskedasticity and autocorrelation problems. Also, feasible generalized least square (FGLS) regression was applied to check the robustness of the results. Findings The study revealed that the cash conversion cycle (CCC) and accounts receivable period (ARP) significantly reduced firm profitability. Also, the inventory conversion period (ICP) significantly reduced return on assets (ROA) but insignificantly influenced return on equity (ROE). However, the results showed that the accounts payable period (APP) significantly increased firm profitability. These findings are robust to the results obtained by applying FGLS regression. Research limitations/implications The study utilized a sample of only the listed halal food and beverage firms that operate in Indonesia, Malaysia, Saudi Arabia, Pakistan and the United Arab Emirates (UAE). Practical implications The study suggests that the management of listed halal firms should adopt an aggressive policy in managing their working capital in order to enhance their financial performance. This could be attained by lowering CCC when ARP and ICP are reduced and APP is increased. Originality/value This study contributes to the literature by providing cross-country empirical evidence showing how working capital and its components affect the financial performance of firms that solely produce or buy and sell halal food and beverage products in five countries.