Working Capital and Financial Performance of Indonesian Manufacturing Companies: Before and During COVID-19

Main Article Content

Ruhadi Ruhadi
Muhamad Umar Mai
Sudradjat Sudradjat


Working Capital Policy, Financial Perfomance, Indonesian Manufacturing Companies, Covid-19


This research intends to reveal two important thoughts related to changes in working capital policies before and during the COVID-19 pandemic in Indonesia. This is essential since most companies’ working capital policy is aggressive during the normal period but conservative during the difficult period (such as COVID-19), where the demand for products fall off due to a decrease in people's purchasing power. Further, this study attempts to investigate the impact of working capital on company financial performance for both time periods. This study used a sample of manufacturing companies listed on the Indonesian capital market from 2017 to 2021. The Wilcoxon signed-rank test was employed to assess changes in working capital policies while panel data regression was utilized as an analytical technique to test the impact of working capital policies on financial performance. This study reveals that, first, working capital policies measured by Cash Holding Level (CHL) expanded dramatically during COVID-19 but remained unchanged when being measured by Cash Interactive Effect (CIE) and Gross Working Capital Ratio (GWCR). Second, working capital policies prior to COVID-19 measured by CHL and CIE had a favorable and significant effect on company financial performance, measured by Return on Assets (ROA) and Return on Equity (ROE).


Download data is not yet available.
Abstract 134 | pdf Downloads 54


Abuzayed, Bana. 2012. “Working Capital Management and Firms’ Performance in Emerging Markets: The Case of Jordan.” International Journal of Managerial Finance 8(2):155–79. doi: 10.1108/17439131211216620.
Afrifa, Godfred Adjapong, and Kesseven Padachi. 2016. “Working Capital Level Influence on SME Profitability.” Journal of Small Business and Enterprise Development 23(1):44–63. doi: 10.1108/JSBED-01-2014-0014
Akgün, Ali İhsan, and Ayyüce Memiş Karataş. 2020. “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):545–67. doi: 10.1108/IJMF-08-2019-0294
De Almeida, Juliano Ribeiro, and William Eid. 2014. “Access to Finance, Working Capital Management and Company Value: Evidences from Brazilian Companies Listed on BM & FBOVESPA.” Journal of Business Research 67(5):924–34. doi: 10.1016/j.jbusres.2013.07.012
Altaf, Nufazil, and Farooq Ahmad. 2019. “Working Capital Financing, Firm Performance and Financial Constraints: Empirical Evidence from India.” International Journal of Managerial Finance 15(4):464–77. doi: 10.1108/IJMF-02-2018-0036
Amponsah-Kwatiah, Kofi, and Michael Asiamah. 2021. “Working Capital Management and Profitability of Listed Manufacturing Firms in Ghana.” International Journal of Productivity and Performance Management 70(7):1751–71. doi: 10.1108/IJPPM-02-2020-0043
Arslan-Ayaydin, Özgür, Chris Florackis, and Aydin Ozkan. 2014. “Financial Flexibility, Corporate Investment and Performance: Evidence from Financial Crises.” Review of Quantitative Finance and Accounting 42(2):211–50. doi: 10.1007/s11156-012-0340-x
Asante, Joseph, Ernest Kissi, and Edward Badu. 2018. “Factorial Analysis of Capacity-Building Needs of Small- and Medium-Scale Building Contractors in Developing Countries: Ghana as a Case Study.” Benchmarking 25(1):357–72. doi: 10.1108/BIJ-07-2016-0117
Baños-Caballero, Sonia, Pedro J. García-Teruel, and Pedro Martínez-Solano. 2014. “Working Capital Management, Corporate Performance, and Financial Constraints.” Journal of Business Research 67(3):332–38. doi: 10.1016/j.jbusres.2013.01.016
Bernard, D. T. K., A. Almeida, S. Perera, H. Jayarathna, and A. A. S. N. Munasighe. 2019. “The Effect of Working Capital Management on the Export Performance of Small and Medium Export Enterprises: Evidence from Export Manufacturing Sector in Sri Lanka.” Journal of Economics and Business 2(3):660–75. doi: 10.31014/aior.1992.02.03.117
Bhatia, Shikha, and Aman Srivastava. 2016. “Working Capital Management and Firm Performance in Emerging Economies: Evidence from India.” Management and Labour Studies 41(2):71–87. doi: 10.1177/0258042X16658733
Bhattacharya, Hrishikes. 2004. Working Capital Management: Strategies and Techniques. 4th ed. New Delhi: Prentice Hall.
Charitou, Melita Stephanou, Maria Elfani, and Petros Lois. 2010. “The Effect Of Working Capital Management On Firms Profitability: Empirical Evidence From An Emerging Market.” Journal of Business & Economics Research (JBER) 8(12):63–68. doi: 10.19030/jber.v8i12.782
Chiang, Yi-chein, Kuei-chih Lee, and Tung Liang Liao. 2019. “Impact of Working Capital Management on Profitability : Study on Foreign Ownership in Taiwan.” 15(1):35–59.
Deloof, Marc. 2003. “Does Working Capital Management Affect Profitability of Belgian Firms?” Journal of Business Finance and Accounting 30(3–4):573–88. doi: 10.1111/1468-5957.00008
Derbali, Abdelkader. 2021. “Determinants of the Performance of Moroccan Banks.” Journal of Business and Socio-Economic Development 1(1):102–17. doi: 10.1108/jbsed-01-2021-0003
Ding, Sai, Alessandra Guariglia, and John Knight. 2013. “Investment and Financing Constraints in China: Does Working Capital Management Make a Difference?” Journal of Banking and Finance 37(5):1490–1507. doi: 10.1016/j.jbankfin.2012.03.025
Egbunike, Chinedu Francis, and Chinedu Uchenna Okerekeoti. 2018. “Macroeconomic Factors, Firm Characteristics and Financial Performance: A Study of Selected Quoted Manufacturing Firms in Nigeria.” Asian Journal of Accounting Research 3(2):142–68. doi: 10.1108/AJAR-09-2018-0029
EL-Ansary, Osama, and Heba Al-Gazzar. 2021. “Working Capital and Financial Performance in MENA Region.” Journal of Humanities and Applied Social Sciences 3(4):257–80. doi: 10.1108/jhass-02-2020-0036
Elgattani, Tawida, and Khaled Hussainey. 2020. “The Impact of AAOIFI Governance Disclosure on Islamic Banks Performance.” Journal of Financial Reporting and Accounting 19(3):434–54. doi: 10.1108/JFRA-03-2020-0053
García-Teruel, Pedro Juan, and Pedro Martínez-Solano. 2007. “Effects of Working Capital Management on SME Profitability.” International Journal of Managerial Finance 3(2):164–77. doi: 10.1108/17439130710738718
Gill, Amarjit, Nahum Biger, and Rajendra Tibrewala. 2010. “Determinants of Dividend Payout Ratios: Evidence from United States.” The Open Business Journal 3:8–14. doi: 10.2174/1874915101003010008
Harford, Jarrad. 2010. “Corporate Cash Reserves and Acquisitions.” Journal of Finance 54(6):1969–97. doi: 10.1111/0022-1082.00179
Hoque, Hafiz, and Heng Liu. 2021. “Capital Structure of Islamic Banks: How Different Are They from Conventional Banks?” Global Finance Journal (May 2020):100634. doi: 10.1016/j.gfj.2021.100634
Jebran, Khalil, Amjad Iqbal, Kalim Ullah Bhat, Muhammad Arif Khan, and Mustansar Hayat. 2019. “Determinants of Corporate Cash Holdings in Tranquil and Turbulent Period: Evidence from an Emerging Economy.” Financial Innovation 5(1). doi: 10.1186/s40854-018-0116-y
Jiang, Junhua. 2017. “Discount Rate or Cash Flow Contagion? Evidence from the Recent Financial Crises.” Research in International Business and Finance 39:315–26. doi: 10.1016/j.ribaf.2016.07.035
Kahle, Kathleen M., and René M. Stulz. 2013. “Access to Capital, Investment, and the Financial Crisis.” Journal of Financial Economics 110(2):280–99. doi: 10.1016/j.jfineco.2013.02.014
Laghari, Fahmida, and Ye Chengang. 2019. “Investment in Working Capital and Financial Constraints: Empirical Evidence on Corporate Performance.” International Journal of Managerial Finance 15(2):164–90. doi: 10.1108/IJMF-10-2017-0236
Ledhem, Mohammed Ayoub, and Mohammed Mekidiche. 2020. “Economic Growth and Financial Performance of Islamic Banks: A CAMELS Approach.” Islamic Economic Studies 28(1):47–62. doi: 10.1108/ies-05-2020-0016
Moussa, Amr Ahmed. 2019. “Determinants of Working Capital Behavior: Evidence from Egypt.” International Journal of Managerial Finance 15(1):39–61. doi: 10.1108/IJMF-09-2017-0219
Mun, Sung Gyun, and Soo Cheong Shawn Jang. 2015. “Working Capital, Cash Holding, and Profitability of Restaurant Firms.” International Journal of Hospitality Management 48:1–11. doi: 10.1016/j.ijhm.2015.04.003
Nazir, Mian Sajid, and Talat Afza. 2009. “Impact of Aggressive Working Capital Management Policy on Firms ’ Profitability.” The IUP Journal of Applied Finance 15(8):19–31.
Panda, Ajaya Kumar, and Swagatika Nanda. 2018. “Working Capital Financing and Corporate Profitability of Indian Manufacturing Firms.” Management Decision 56(2):441–57. doi: 10.1108/MD-07-2017-0698
Peng, Juan, and Zhili Zhou. 2019. “Working Capital Optimization in a Supply Chain Perspective.” European Journal of Operational Research 277(3):846–56. doi: 10.1016/j.ejor.2019.03.022
Pestonji, Chosita, and Sareeya Wichitsathian. 2019. “The Impacts of Working Capital Policy on Firms’ Performances: An Empirical Study on Thai Listed Companies in Production Sector.” International Symposia in Economic Theory and Econometrics 26:40–51. doi: 10.1108/S1571-038620190000026003
Ramachandran, Jayalakshmy, Khoo Kok Chen, Ramaiyer Subramanian, Ken Kyid Yeoh, and Kok Wei Khong. 2018. “Corporate Governance and Performance of REITs: A Combined Study of Singapore and Malaysia.” Managerial Auditing Journal 33(6–7):586–612. doi: 10.1108/MAJ-09-2016-1445
Salehi, Mahdi, Nadia Mahdavi, Saeed Zarif Agahi Dari, and Hossein Tarighi. 2019. “Association between the Availability of Financial Resources and Working Capital Management with Stock Surplus Returns in Iran.” International Journal of Emerging Markets 14(2):343–61. doi: 10.1108/IJoEM-11-2017-0439
Seth, Himanshu, Saurabh Chadha, Satyendra Kumar Sharma, and Namita Ruparel. 2020. “Exploring Predictors of Working Capital Management Efficiency and Their Influence on Firm Performance: An Integrated DEA-SEM Approach.” Benchmarking 28(4):1120–45. doi: 10.1108/BIJ-05-2020-0251
Sharma, A. K., and Satish Kumar. 2011. “Effect of Working Capital Management on Firm Profitability: Empirical Evidence from India.” Global Business Review 12(1):159–73. doi: 10.1177/097215091001200110
Simon, Sunday, Norfaiezah Sawandi, and Mohamad Ali Abdul-Hamid. 2017. “The Impact of Working Capital Management Investments on Firm Performances During and After Financial Crisis.” Proceedings of the International Conference on Accounting Studies (Icas) 2017 (September):79–85.
Singh, Harsh Pratap, and Satish Kumar. 2014. “Working Capital Management: A Literature Review and Research Agenda.” Qualitative Research in Financial Markets 6(2):173–97. doi: 10.1108/QRFM-04-2013-0010
Tsuruta, Daisuke. 2019. “Working Capital Management during the Global Financial Crisis: Evidence from Japan.” Japan and the World Economy 49(November 2017):206–19. doi: 10.1016/j.japwor.2019.01.002