The Effect of Working Capital Management on Firm Performance with Financial Constraint and Non-Financial Constraint

Abstract:

The purpose of this study is to examine the linkage between working capital management and firm performance with the sample of manufacturing firm in Indonesia. The empirical evidence proves that there is an inverted U shaped relation between working capital management and firm performance. This means that there is an optimal working capital level that maximize firm performance. Furthermore, this study also examine the sensitivity of this relation to financial constraint. The findings show that firm that is financially constrained have a lower optimal working capital level.