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Article
Publication date: 26 October 2020

Osama EL-Ansary and Heba Al-Gazzar

This paper aims to investigate the possible non-linear effect of net working capital (NWC) level on profitability for Middle East and North Africa (MENA) region listed companies…

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Abstract

Purpose

This paper aims to investigate the possible non-linear effect of net working capital (NWC) level on profitability for Middle East and North Africa (MENA) region listed companies. Furthermore, the study tests the possible interactive effect of cash levels on the relationship between NWC and profitability.

Design/methodology/approach

NWC level is the independent variable and profitability is the dependent variable using two proxies, return on assets (ROA) and returns on equity (ROE). Control variables are size, leverage, gross domestic product growth and sales revenue growth. The generalized method of moments was used to analyze the data of 134 consumer-goods listed firms in 12 MENA countries for the period 2013–2019.

Findings

The results demonstrate that NWC levels had a non-linear effect on profitability using ROA as a profitability proxy while results were insignificant using ROE as a profitability proxy. Furthermore, results show the absence of interactive effects between NWC, cash levels and both profitability proxies.

Originality/value

The study fills a gap in the working capital management (WCM) literature by providing new evidence on WCM’s non-linear effect of corporate performance in the MENA region emerging markets using the consumer-goods industry sample. The study contributes to the financial managers’ working capital optimization efforts in the MENA region by providing evidence on the usefulness of WC optimization efforts in the region from a financial performance point of view. According to the researchers’ knowledge, a few studies attempted to investigate this non-linear relationship for neither MENA region countries nor the consumer-goods industry.

Details

Journal of Humanities and Applied Social Sciences, vol. 3 no. 4
Type: Research Article
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