The role of financial constraint on the relationship between working capital management and firms performance
Rahmat Heru Setianto and Rinangling Hayuningdyah

Universitas Airlangga

Abstract

This study aims to determine the relationship of inverted u-shape and the role of financial constraints on the influence of working capital management on corporate performance. The sample of this study is a manufacturing company listed on the Indonesian stock exchange period 2011-2015. The number of companies are 98 companies base on purposive sampling method. The dependent variable used is corporate performance measured using Tobins Q, the independent variable is the working capital management measured using Net Trade Cycle, and the financial constraints moderation variable is measured using dummy financial constraints classification based on cash flow, interest coverage, dividend payout, dividend payout ratio, cost of external financing, and size. In addition, the control variables used in this study are size, leverage, growth, and Return on Assets. The analysis technique used is multiple regression analysis. The result of regression analysis shows that there is an inverted u-shaped relationship and the role of financial constraints on the influence of working capital management on corporate performance. Furthermore, size, leverage, and Return on Asset have a significant positive effect on corporate performance, while growth has a negative effect on corporate performance.

Keywords: working capital management; corporate performance; financial constraints

Topic: Financial Management and Accounting