WORKING CAPITAL MANAGEMENT AND FIRM PROFITABILITY: IMPLICATIONS FOR FINANCIAL SUSTAINABILITY IN VIETNAM

This study examines the impact of working capital management (WCM) on firm profitability with a particular focus on financial sustainability in an emerging market context. Utilizing panel data from 649 non-financial enterprises registered on Vietnamese stock markets from 2019 to 2023, company profitability is represented by return on assets (ROA), while working capital management is assessed through the cash conversion cycle (CCC) and the current ratio (CR). To account for any nonlinear effects, squared terms of CCC and CR are included in the regression models. The empirical study uses pooled ordinary least squares (OLS), fixed-effects (FEM), and random-effects (REM) estimators. The results provide strong evidence of nonlinear relationships between working capital management and corporate profitability. The CCC has a U-shaped relationship with ROA. This means that both extremely aggressive and unduly relaxed working capital practices can hurt profits. On the other hand, the CR shows an inverted U-shaped relationship with profitability. The study contributes to the field of sustainable finance by demonstrating that effective management of working capital enhances the resilience of firms in Vietnam and fosters long-term economic success.