Working Capital and Its Influence on Firm Performance and Sustained Growth: Evidence from Consumer Non-Cyclicals Manufacturing Companies on the Indonesia Stock Exchange
DOI:
https://doi.org/10.61132/ijems.v3i2.1218Keywords:
Cash Holding Level, Consumer Non-Cyclicals, Firm Performance, Sustained Growth, Working CapitalAbstract
This study examines the effect of working capital on firm performance and sustained growth among consumer non-cyclicals manufacturing companies listed on the Indonesia Stock Exchange (IDX) over the period 2019–2023. Working capital is operationalized through three distinct proxies derived from Akgün and Memiş Karatəs (2021): the Cash Holding Level (CHL), which measures the proportion of cash and cash equivalents relative to total assets; the Cash Interactive Effect (CIE), which captures the efficiency of converting revenue into operating cash flow; and the Gross Working Capital Ratio (GWCR), which reflects the share of current assets within total assets. Firm performance is assessed through Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q, while sustained growth is measured using the model proposed by Gerson et al. (2025), expressed as SG = b × ROE, where b denotes the earnings retention ratio. Panel data regression analysis is applied to 225 firm-year observations drawn from 45 companies. The study employs the Fixed Effect Model (FEM) for ROA and ROE, and the Random Effect Model (REM) for Tobin’s Q, as determined by the Hausman specification test. The findings reveal that CHL and CIE exert significant positive effects on ROA and ROE, while CIE is the only proxy to produce a statistically significant positive effect on Tobin’s Q. With respect to sustained growth, CHL and GWCR demonstrate significant negative effects, whereas CIE shows a significant positive effect, indicating that operational efficiency dimensions of working capital actively support long-term growth sustainability. These results reinforce the liquidity management theory and contribute empirical evidence that the structure and efficiency of working capital are strategic determinants of both short-term financial performance and long-term growth sustainability in Indonesia’s consumer goods manufacturing sector.
Downloads
References
Afrifa, G. A., & Padachi, K. (2016). Working capital level influence on SME profitability. Journal of Small Business and Enterprise Development, 23(1), 44–63. https://doi.org/10.1108/JSBED-01-2014-0014
Akgün, A. İ., & Memiş Karatəs, A. (2021). Investigating the relationship between working capital management and business performance: Evidence from the 2008 financial crisis of EU-28. International Journal of Managerial Finance, 17(4), 545–567. https://doi.org/10.1108/IJMF-07-2019-0277
Arhinful, R., & Radmehr, M. (2023). The effect of financial leverage on financial performance: Evidence from non-financial institutions listed on the Tokyo Stock Exchange. SAGE Open, 13(3), 1–17. https://doi.org/10.1177/21582440231185200
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2010). Working capital management in SMEs. Accounting and Finance, 50(3), 511–527. https://doi.org/10.1111/j.1467-629X.2009.00331.x
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332–338. https://doi.org/10.1016/j.jbusres.2013.01.016
Brigham, E. F., & Houston, J. F. (2021). Fundamentals of financial management (16th ed.). Cengage Learning.
Creswell, J. W. (2014). Research design: Qualitative, quantitative, and mixed methods approaches (4th ed.). SAGE Publications.
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3–4), 573–587. https://doi.org/10.1111/1468-5957.00008
Dittmar, A., Mahrt-Smith, J., & Servaes, H. (2003). International corporate governance and corporate cash holdings. Journal of Financial and Quantitative Analysis, 38(1), 111–133. https://doi.org/10.2307/4126766
Eljelly, A. M. (2004). Liquidity-profitability tradeoff: An empirical investigation in an emerging market. International Journal of Commerce and Management, 14(2), 48–61. https://doi.org/10.1108/10569210480000179
Gerson, J., Jooste, C., & Swanepoel, E. (2025). The determinants of sustainable growth in South African listed companies. South African Journal of Accounting Research, 39(1), 1–22. https://doi.org/10.1080/10291954.2025.0000001
Gill, A., Biger, N., & Mathur, N. (2010). The relationship between working capital management and profitability: Evidence from the United States. Business and Economics Journal, BEJ-10, 1–9.
Higgins, R. C. (1977). How much growth can a firm afford? Financial Management, 6(3), 7–16. https://doi.org/10.2307/3665251
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3–46. https://doi.org/10.1016/S0304-405X(99)00003-3
Santoso, S. (2013). Pengaruh modal kerja dan perputaran modal kerja terhadap return on equity (ROE) perusahaan manufaktur di BEI. Jurnal EMBA, 1(3), 1040–1050. https://doi.org/10.35794/emba.1.3.2013.2109
Wang, Y. J. (2002). Liquidity management, operating performance, and corporate value: Evidence from Japan and Taiwan. Journal of Multinational Financial Management, 12(2), 159–169. https://doi.org/10.1016/S1042-444X(01)00047-0
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 International Journal of Economics and Management Sciences
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
