The Impact Of Working Capital Management On The Business Performance Evidence From Food And Beverage Firms Listed On The Vietnamese Stock Market.pdf

INTRODUCTION

REASONS FOR CHOOSING THE TOPIC

In corporate finance, the main objective is to boost revenue and profits by effectively managing the trade-off between risks and returns There is often a conflict between liquidity and profitability in financial decisions, especially when dealing with short-term finances and working capital Efficient working capital management is crucial for determining credit sales policies, customer behaviors, and procurement of production materials, as well as the company's obligations to its suppliers Prioritizing improved liquidity and cash flow directly impacts operational risk and performance, providing businesses with the opportunity to capitalize on every chance for advancement (Sial and Chaudhry, 2010) Liquidity management, working capital and its measures are important in good times, but are of additional importance during period of financial crisis Therefore, many studies have examined how the global financial crisis has changed the working capital management policies of firms (Akgün

The current economic uncertainties and pressures in the global financial market are placing growing demands on businesses and their supply chains According to a report from PricewaterhouseCoopers (PWC) in 2019, the time taken to convert working capital into revenue has significantly increased, mainly due to the impact of the Covid-19 pandemic This highlights the sluggish response of supply chains to major events The report also emphasizes the ongoing struggle for businesses in Vietnam to enhance their cash cycle, underlining the crucial importance of improved cash management and heightened focus on working capital, especially during economic downturns

The food and beverage (F&B) industry stands out as one of the major business sectors in Vietnam, closely interconnected with the population and boasting considerable potential for growth In the aftermath of the pandemic and in light of the increasing consumer preference for eco-friendly and sustainable products, F&B enterprises in Vietnam are actively shifting towards sustainability throughout their production processes Consequently, the management of working capital has become even more crucial in this industry, given the pressing global challenge posed by climate change, as well as the potential risks following the Covid-19 pandemic Specifically, this industry presents unique characteristics, such as: limited cash flow, a stringent and short-term use of inventory, as well as substantial turnover with regards to receivables and payables

To ensure the efficacy of food and beverage companies' business operations, inventory management requires an assessment of storage time and appropriate stock levels in line with market demand However, these industry enterprises often face outstanding receivables from customers and payables to suppliers Consequently, the crucial issue at hand is the need to quantify the relationship between working capital management and business efficiency From there, managers will have a foundation in managing their working capital activities

For the aforementioned reasons, the author has chosen the topic: "The impact of working capital management on the business performance: Evidence from food and beverage firms listed on the Vietnamese stock market" with the aim of providing empirical evidence and contributing additional reference materials for managers The findings of this research on the impact of working capital management on business efficiency will support managers in understanding the significance of working capital management and making decisions to improve business operations Furthermore, managers can formulate policies to enhance financial management and optimize company profitability based on the recommendations from this research.

RESEARCH OBJECTIVES

The main objective is to examine the effect of the factors representing working capital management on the business performance of food and beverage (F&B) firms listed on the Vietnamese stock market and estimate the impact of these factors on

From the research results, the topic proposes relevant policy implications to improve their operational efficiency

To achieve the overall goal, the research focuses on addressing the following specific sub-objectives:

Firstly, measuring the influence and analyzing direction of activity of the working capital management affecting the business performance of the F&B industry enterprises listed on the Vietnam Stock Exchange

Secondly, proposing some policy implications to support the F&B firms listed on the Vietnamese stock market to improve their business operation based on the research findings.

RESEARCH QUESTIONS

From sub-objectives, this thesis is aimed to solve some issues:

Question 1: How does the working capital management affect the business performance of the F&B industry enterprises listed on the Vietnamese stock market?

Question 2: Which are policy implications to support the mentioned firms to improve their business operation through the results of this study?

RESEARCH SUBJECTS AND SCOPE

The research objects in this topic are the business performance, the working capital management and the impact of the working capital management on the business performance of the F&B companies listed on the Vietnam Stock Exchange

Although there are 53 companies F&B according to Industry Classification Benchmark (ICB) listed in Vietnam stock market consist of Ho Chi Minh City Stock Exchange (HOSE), Ha Noi Stock Exchange (HNX), the thesis uses data sample of

44 food and beverage firms in Vietnam stock market base on carefully considered criteria to ensure a representative sample These enterprises were selected because of their audited financial statements and public transparency met the requirements for this thesis Due to limitations in time, facilities as well as data sources, this research can only focus on data of 44 enterprises accounting for a significant proportion (approximately 83%) of the total 53 F&B companies in Vietnam

The research period chosen for this topic is 5 years, extending from 2017 to the end of 2022 This period was chosen to cover the changes in recent years that have affected the country's economic system in general and the F&B industry in particular Moreover, this is also the stage where sufficient data for this thesis can be collected.

RESEARCH METHODOLOGY AND DATA

The research method used for the thesis is a combination of qualitative and quantitative Regarding qualitative research methods, synthesizing and comparing previous studies, including studies in Vietnam and abroad, is necessary to identify factors that represent working capital management on business performance of 44 food and beverage enterprises listed on the Vietnam stock market To estimate the impact of these factors on the business performance of the firms mentioned, the collected data set is tested using the quantitative methods of OLS (Ordinary Least Square) regression model, FEM (Fixed Effect Model), REM (Random Effect Model), and FGLS (Feasible Generalized Least Squares) method Moreover, the F-test, LM, and Hausman-test will be used in the study to evaluate the model's suitability to decide which model is better In case the model has defects, the FGLS method will be used to overcome Further, the study also uses descriptive statistical methods (analysis of charts, images, indicators) to analyze the impact of working capital management on business performance of food and beverage companies listed on the Vietnam stock market Instruments supporting the analysis process in this topic are Excel and Stata 15.0 software

The data used is a secondary data source, includes reports and financial indicators of firms listed on Vietnam Stock Exchange This data collected from database of Fiinpro-X software by Fiingroup This research centers on utilizing information from 44 F&B companies listed on the HOSE and HNX, spanning from

2017 to 2022, comprising a total of 264 observations In particular, companies were selected that met the criteria of providing complete data during the sampling period.

RESEARCH CONTRIBUTION

Academically, the study proposes empirical evidence about these factors in working capital management on business performance of enterprises, and considers influence level of each of those factors By reference of the previous research, the author plans to choose OLS (Ordinary Least Square), FEM (Fixed Effect Model), REM (Random Effect Model) and FGLS (Feasible Generalized Least Squares) models as the theoretical foundation and contribute to further improving the practical significance of the model

Practically, the research measures the level of influence as well as the direction of impact of these factors on the business performance of food and beverage businesses listed on the Vietnamese stock exchange today From the results, the study provides some recommendations on economic policies to improve the business performance of food and beverage firms listed on the Vietnamese stock market.

RESEARCH STRUCTURE

Chapter 1 explains the necessity of the topic by introducing a general overview of the topic, presenting the urgency of the topic and its contributions Furthermore, this chapter presents an overview of the research objectives, research questions, research objects, research scope, research methods, research contribution and research structure in detail.

LITERATURE REVIEW

OVERVIEW OF WORKING CAPITAL MANAGEMENT

Before delving into working capital management, it is essential to first establish a clear understanding of the concept of working capital Eugene and Joel (2007) defines working capital also known as gross working capital, as the short-term assets utilized in conducting business operations Teruel and Solano (2006) or Brigham and Houston (2007) define working capital or total working capital as the total short-term assets of the business, including: cash and corresponding accounts cash, short-term financial support accounts, short-term receivable accounts, inventory, other short-term assets, etc are used to finance daily production and business activities of the enterprises According to Richards and Laughlin (1980), working capital encompasses the total value of short-term assets linked to the company's business cycle, which are converted through various forms - transitioning from cash to inventory, receivables, and back to the initial state of cash

To summarize, working capital is one of the sources of funds the firm can use to finance that generates financial needs for operation; the balance will be financed using short-term financial debt Under this framework, it is clear that the amount of working capital a firm decides to use is a strategic decision, as it determines how much of the financial needs for operation (FNOs) to finance with long-term capital and how much to finance with short-term financial debt

Working capital management is defined as the management of short-term assets, short-term liabilities and the management of financing these assets (Gill, Biger

& Mathur, 2010) According to Osisioma (1997), working capital management is described as the management, control and adjustment to ensure the balance between assets so that short-term financial obligations are fulfilled on time If a business is unable to make enough payments, this can lead to bankruptcy (Dunn and Cheatham, 1993) Similarly, Hill et al (2010) expressed the view that working capital management encompasses the control of short-term assets and short-term liabilities Specifically, short-term assets encompass cash and readily liquidable items including inventory and receivables Therefore, working capital management involves managing the components of current assets by formulating and implementing management policies on working capital and current liabilities (Van Horne and Wachowicz, 2005) Investing excessively in short-term assets can negatively impact a company's overall performance Conversely, limiting investment in short-term assets can increase risks by reducing liquidity and potentially causing operational challenges Besides, working capital management is primarily concerned with day to day operations financing Net working capital management includes balancing the proportion of working capital components, such as accounts receivable, inventory, and accounts payable, and efficiently using cash and cash equivalents for daily business operations (Agha, 2014)

To sum up, the management of working capital includes the decisions and strategies for monitoring and controlling short-term assets and liabilities such as cash flow, receivables, inventory, and payables Its goal is to maintain adequate cash flow for operations while reducing the risk of defaulting on short-term financial obligations For the reason, working capital management helps managers in creating value for shareholders (Shin & Soenen, 1998) and that is critical for the survival and growth of any organization because it affects the profitability and liquidity available for a business (Deloof, 2003; Falope & Ajilor, 2009; Gill et al, 2010).

OVERVIEW OF BUSINESS PERFORMANCE

2.2.1 Definition of business performance’s firm

The concept of business efficiency in an organization pertains to how effectively it utilizes its available resources to accomplish established objectives Business performance is characterized by achieving maximum output with minimal input costs In there, input costs encompass the various resources such as capital, labor, raw materials, machinery, technology, and other owned or utilized assets required to reach business objectives Moreover, business performance is the rate at which the success of a business, often evaluated based on its financial performance Financial performance pertains to the revenue generated from a specific business operation and can be seen as the return on the business owners' investment

According to Chakravarthy (1986), financial profitability involves the act of maximizing revenue while minimizing expenses in order to optimize the return on the overall assets of the business, as well as maximizing the profit earned by the shareholders who have invested capital in the enterprise Therefore, profitable efficiency in terms of corporate finance is the efficiency of mobilizing, using and managing capital resources in the enterprise (Truong Ba Thanh and Tran Dinh Khoi Nguyen, 2001) To conclude, business performance in this study is efficiency through the use of available resources to accomplish the set objective, specifically maximizing profitability

2.2.2 Measurement of business performance’s firm

To measure financial performance, financial indicators such as return on total assets ratio, liquidity ratio, activity ratio and debt ratio are often used (Ismaila, 2011)

A business's performance can be evaluated using various quantitative measures such as product consumption, revenue, profit, market share, as well as qualitative indicators that reflect reputation and quality According to Murphy and Hill (1996), the profitability of a business should be assessed using indicators encompassing both accounting and market values Regardless of the measures used, the effectiveness of financial management is fundamentally indicated by some key metrics as:

This metric evaluates the return on investment in a company's assets It is computed by dividing the net profit (or after-tax profit) of the business for a specific reporting period (such as 1 month, 1 quarter, half-year, or 1 year) by the average total asset value during the same period following:

Return on assets (ROA) is a measure of how effectively a company manages and utilizes its assets to generate income A higher value of the index signifies better performance, indicating that the company is able to generate more income with less investment In particular, the variability of the production and industry characteristics significantly influences this ratio Thus, when comparing companies using the ROA index, it's prudent to assess their trends over time and compare them to similar companies in the same sector

This ratio represents the effectiveness of a business's equity in generating profits ROE index is an accurate measure to evaluate how much profit a dollar of capital spent and accumulated generates It is calculated:

A higher ratio ROE indicates that the company is efficiently utilizing shareholder capital and is likely to appeal to more investors It means the company has effectively managed a blend of shareholders and borrowed capital to leverage its competitive edge while raising funds and expanding its operations Therefore, investors find high ROE very appealing Besides, assessing a reasonable ROE index can differ across various industries and business sectors, relying on the amount of capital utilized in generating profits An accepted guideline when assessing businesses is to target companies with an ROE that matches or surpasses the industry average

James Tobin introduced the Q ratio in 1969 as a measure of a company's value This ratio is calculated by comparing a company's market price to its replacement cost of capital A high Q ratio indicates that the company's market price relative to the cost of raising additional capital is high It is a useful tool for assessing investment attractiveness and guiding investment decisions

Besides the mentioned metrics, there are numerous indicators utilized to gauge the business performance of enterprises However, in many research studies and practical applications, the aforementioned three indicators are commonly the most utilized Nevertheless, the ROA index is frequently favored for measurement based on all financial resources In practice, managers often assess leadership effectiveness by comparing the profit-to-total assets ratio of a company Thus, this research employs ROA as a representative for calculating business performance indicators in the food and beverage industry.

THE IMPACT OF WORKING CAPITAL MANAGEMENT ON THE

Efficient working capital management is crucial for the business organizations because it has a significant impact on both profitability and liquidity Therefore, it is important for the financial managers and executives to understand the requirements of working capital (Gill, 2011) Effective management of working capital is of crucial importance in a company's overall corporate strategy, aiming to enhance shareholder value How working capital is managed can significantly impact a company's liquidity and profitability (Shin & Soenen, 1998) while profitability and liquidity are opposite sides of the same coin (Nguyen, 2023) Maximizing profits is a primary goal for any firm but maintaining liquidity is also vital Striking a balance between these two objectives is crucial for sustainable success Neglecting profit can lead to long- term sustainability issues, and overlooking liquidity may result in insolvency Therefore, proper attention to working capital management is essential, as it directly influences a firm's profitability Working capital management affects firms' liquidity as it relates to current assets and current liabilities (Adekola, Samy & Knight, 2017) and in the end, it affects firm's profitability (Deloof, 2003; Nastiti, Atahau, & Supramono, 2019) Thus, short-term financing, which is also called working capital management, plays a crucially important role for business performance (Garcıa-Teruel and Martınez-Solano, 2007)

In corporate financial analysis theory, the working capital cycle also referred to as the cash conversion cycle in business, which evaluates how effectively an organization manages its working capital (Brealey, Myers & Allen, 2014) It represents the time between spending on raw materials and receiving payment for the finished goods Makoni and Ndonwabile (2020) confirmed that managing working capital of firms by shortening the cash conversion cycle can significantly improve the profitability of firms The cash conversion cycle (CCC) under the working capital approach encompasses inventory conversion period (ICP), receivables conversion period (RCP) and payables deferral period (PDP) In this view, financial managers primarily focus on working capital activities, which consume a significant amount of their time and attention The challenge of fully fulfilling the capital requirements for current assets is the driving force behind the swift conversion between different forms of existing assets to continually generate cash reserves Consequently, the impact of the working capital management on the business performance’s firm in this study can be examined in detail from the following perspectives: (i) inventory management impact on business performance; (ii) accounts receivable management impact on business performance; (iii) accounts payable management impact on business performance

2.3.1 The impact of inventory management on firm performance

Inventory encompasses both raw materials and finished products held by a business A lengthy inventory cycle indicates that the business is making a significant investment in inventory, hoping for a future surge in demand for its goods that would boost sales and profits, thereby enhancing the firm performance Nonetheless, a substantial inventory investment exposes the company to various risks, including product damage, loss, obsolescence, and additional costs such as storage and insurance fees Conversely, insufficient inventory levels can elevate the risk of losing customers who find the company unable to fulfill their needs, potentially driving them to seek out competitors Financial managers find inventory management a more challenging task; for them to reduce costs and shorten the cash conversion cycle, it implies that inventory should be minimized as much as possible (Ogutu, 2022) Such a situation would be costly for any company due to the revenues they would lose (Maness & Zietlow, 2005) Consequently, managers must carefully consider the benefits and costs of maintaining inventory as it directly impacts the business's performance

2.3.2 The impact of accounts receivable management on firm performance

Accounts receivable are considered short-term loans to customers Maintaining stability is crucial, but increasing receivables can indicate an expansion of credit selling policy, leading to more customers and increased revenue However, this also brings higher costs such as opportunity cost of cash flow that could have been received, impacting the trade-off between profitability and risk If credit is tightened, the company may lose customers due to its too strict credit policy, thereby affecting the company's profitability Companies depend more or less on their account receivables to finance some if not all of their payables and they should therefore attempt to reduce their credit time to customers as much as possible (Rimo and Panbunyuen, 2010) It can be seen that receivables affect the trade-off between profitability and risk

2.3.3 The impact of accounts payable management impact on firm performance

In contrast to accounts receivable, accounts payable is a source of capital appropriated from suppliers A company has a payable when the company buys goods and agrees with the supplier to pay for a certain term, the obligation to pay is recorded in the payable account until the company pays the supplier (Hampton & Wagner, 1989) Eugene and Joel (2007) argued that payables are considered a financial source or endogenous capital because it is generated from the regular activities of the business When a business purchases goods and the supplier accepts deferred payment, it means that the business has used a source of financial support from the supplier Therefore, the company has a lot to gain from strategically allocating capital for short-term funding, which minimizes capital expenses One additional reason for extending the payment period is that manufacturing companies might require time to process their acquired raw materials into sellable products in order to generate cash in return (Maness & Zietlow, 2005) Extending payment terms can ease operational cash flow strain, but opting for longer payment terms means losing immediate payment discounts from suppliers On the other hand, elongating accounts payable cycle could harm the company’s image and affect long-term profitability.

PREVIOUS EMPIRICAL EVIDENCES

In the study conducted by Deloof (2003), a dataset of 1,009 large Belgian non- financial firms for the period of 1992-1996 was analyzed Trade credit policy and inventory policy were evaluated using metrics such as the number of days accounts receivable, accounts payable, and inventories, while the cash conversion cycle was utilized as a comprehensive indicator of working capital management The findings indicate that managers have the potential to enhance corporate profitability by reducing the number of days accounts receivable and inventories Moreover, it was observed that less profitable firms tend to delay their bill payments

Adeel Mumtaz et al (2011) assessed the impact of working capital management on firm performance in the Karachi stock exchange It analyzed 22 firms in the chemical sector over a 6-year period Variables included number of days receivables, number of days inventory, and control variables like size, leverage, inventories, equity, sales, and gross domestic product (GDP) Return on Asset (ROA) was the dependent variable indicating firm performance The findings suggest a negative relationship between working capital and firm performance, while a positive association was observed between firm size and profitability Additionally, there was a negative correlation between profitability and the debt used by firms, aligning with pecking order theory

In the same year, Mustafa Afeef (2011) conducted a study to investigate how the management of working capital could potentially influence the profitability of small and medium-sized enterprises (SMEs) in Pakistan The research involved an in-depth examination of 40 Pakistani SMEs listed on the Karachi Stock Exchange between 2003 and 2008, leading to a total of 240 firm-year observations The findings indicated that the metrics of working capital management had a significant impact on the profitability of the firms under analysis

Sajjd Gul (2013) aimed to analyze how working capital management (WCM) influences the performance of small and medium enterprises (SMEs) in Pakistan from

2006 to 2012 Data was collected from various sources such as SMEDA, Karachi Stock Exchange, tax offices, the companies themselves, and Bloom Burgee Business Week The 2006-2012 period was chosen due to the availability of the most recent data The study used Return on Assets as the measure of profitability, and independent variables included the number of days accounts receivable, days inventory, cash conversion cycle (CCC), and days accounts payable Panel data techniques were utilized to investigate WCM's impact, revealing a positive association between the days accounts payable and profitability, while the average collection period, inventory turnover, and CCC showed an inverse relationship Additionally, firm size, leverage, and growth also played a role Size and sales growth positively impacted profitability, while the debt ratio had a negative impact

Micheal, Segun and Taiwo (2017) examined the impact of working capital management on financial performance of quoted consumer goods manufacturing firms in Nigeria by specifically examining the impact of working capital management on return on assets (ROA) and gross operating profit (GOP) The secondary data used were obtained from annual financial statements over a period of ten years from 2005 to 2014 of purposively sampled fifteen firms Descriptive statistics were used to measure variations, statistical inferences were drawn using correlation and panel regression analysis was applied on performance and working capital management indicators to test the formulated hypotheses The findings revealed that efficient working capital management increases financial performance In conclusion, a negative relationship exists between Cash Conversion Cycle (CCC) and financial performance while there is a positive relationship between creditors’ payment period; debtors’ collection period and financial performance

Nastiti et al (2019) investigated the influence of working capital management on firm profitability and its indirect link to sustainable growth The analysis of 136 manufacturing firms listed on the Indonesian Stock Exchange from 2010 to 2017 highlights the significant impact of working capital on profitability, and its indirect effect on sustainable growth The study recommends that firms focus on efficient working capital management to boost profits and drive sustainable growth, offering valuable insights for managers aiming to enhance long-term growth

Most recently, Makoni and Ndonwabile (2020) investigated the link between working capital management and profitability in 12 food and beverage companies listed on the Johannesburg Stock Exchange (JSE) in South Africa from 2007 to 2016 They used gross operating profit (GOP) as the profitability measure and examined the inventory conversion period (ICP), average collection period (ACP), and average payment period (APP) as indicators of working capital management The study employing the generalized method of moments (GMM) model, revealed a negative correlation between ICP and profitability, a negative correlation between ACP and profitability, and a positive correlation between APP and firm profitability

The research conducted by Huynh Phuong Dong and Jyh-tay Su (2010) is based on secondary data gathered from listed firms in the Vietnam stock market during the period of 2006-2008 The study aims to investigate the relationship between profitability, the cash conversion cycle, and its components for listed firms in the Vietnam stock market The findings reveal a strong negative correlation between profitability (measured through gross operating profit) and the cash conversion cycle This indicates that an increase in the cash conversion cycle leads to a decline in the firm's profitability

Tu Thi Kim Thoa and Nguyen Thi Uyen Uyen (2014) examined this topic Using panel data analysis including 208 non-financial companies listed on the Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) in the period

2006 to 2012 Using methods pooled least squares estimation (pooled OLS), fixed effects model (FEM) and generalized least squares (GLS) test the relationship between working capital management and profitability in Vietnamese industry businesses The results show that effective working capital management by shortening the collection period and inventory period will increase profitability for businesses The authors also studied this relationship in a number of different industries and the results showed that due to different industry characteristics, the relationship between working capital management and profitability among industries is also different

The study by Thanh Truc and Dinh Thien (2015) investigated the relationship between a firm's performance and its working capital management policy The research was based on data from 564 companies listed on the Vietnamese Stock Market over the period from 2006 to 2013 The study utilized Fixed Effects Model and Random Effects Model regressions for unbalanced panel data The findings revealed statistically significant negative relationships between profitability (measured as ROA) and the days of working capital conversion, such as inventory conversion period, average collection period, payables deferral period, and cash conversion cycle Additionally, the research documented a positive association between the current assets turnover, the level of current assets in total assets (as a percentage of total assets), and ROA

The research by Duong Thi Hong Van and Tran Phuong Nga (2018) evaluated the impact of working capital management on firms' return on assets (ROA) using data from 42 Vietnam Stock Market-listed construction materials manufacturers from

2012 to 2016 The study shows that aspects of working capital management, like average collection period and average payment period, affect total asset profitability Additionally, company size, debt ratio, and fixed asset ratio also influence total asset profitability

Tran Thi Thu Trang (2020) investigated the relationship between working capital management and financial performance in Vietnam’s plastic industry Data from 28 listed companies during 2014-2019 was used, with regression methods and balanced panel data The findings favored the random effects model, showing positive correlations between inventory turnover days (ICP), current liquidity ratio (CR), and profit to total assets ratio; and a negative correlation with accounts receivable turnover days (RCP) and return on total assets (ROA) ratio

In conclusion, prior studies have frequently shown that proficient management of working capital can have a significant impact on business profitability Research commonly used metrics such as ROA and GOP ratio as indicators of business performance or profitability Furthermore, working capital management is often assessed through key measures like CCC, ICP, RCP and PDP Additionally, other factors including company size, debt ratio, financial leverage, revenue growth rate, and GDP are also taken into consideration as potential influencers of business performance Summary of previous studies is shown in the table 2.1 below:

Table 2.1: Summary of relevant previous empirical studies

Author Research topic Data Research method Research result

Does Working Capital Management Affect Profitability of Belgian Firms?

Using Pooled OLS ordinary linear regression model and fixed effects model

The study found that a significant inverse relationship between gross operating income and the length of accounts receivable, inventories, and accounts payable for Belgian firms

The relationship between working capital management and profitability: a Vietnam case

130 firms on Vietnam stock market,

Data panel regression with fixed effect estimation model

METHODOLOGY

RESEARCH PROCESS

Research involves several scientific steps that are interconnected with each other To streamline the research process and enhance the coherence of the thesis, the author has delineated eight research steps as follows table:

Step 1: Identification of the research objectives

The author formulates the research problem then builds and clarifies the research goals for the thesis

Step 2: Reviewing previous studies and literature

The author contextualizes the theoretical framework and related literature within the Vietnamese and international context, in order to identify areas where further research is needed and to present research models

Identification of the research objectives Reviewing previous studies and literature Building up research model and hypotheses

Collecting data Processing data Conducting quantitative analysis Formulating conclusion and recommendation

Step 3: Building up research model and hypotheses

The author bases on theoretical and related empirical studies to formulate suitable hypotheses and propose a panel data regression model Quantitative analysis was used with the help of STATA 15.0 software

The author collects secondary data of 44 F&B companies listed on the Vietnamese stock market from 2017 to 2022 by Fiinpro-X and public information on companies’ official websites Then, performing calculations according to the formula on Excel software for the missing index

Data processing by STATA 15.0 software include (1) Descriptive statistics, (2) Correlation coefficient matrix analysis, (3) Regression model analysis of panel data, (4) model defect testing, (5) Fix defects (if any), (6) Results analysis

Following the execution of Stata, the author conducts analyses and assessments to choose models that meet the required conditions Identify strategies to address and optimize the occurring constraints in the model

Step 7: Formulating conclusion and recommendation

The author uses research findings to provide commentary and draw conclusions regarding the impact of variables, address queries in the first chapter, offer guidance to emerging participants, and suggest future research directions

The author synthesizes information and compiles a comprehensive thesis.

RESEARCH MODEL

3.2.1 General form of the model

To measure the impact of working capital management on business performance, the study referenced from the models of Adeel Mumtaz et al (2011), Mustafa Afeef (2011), Sajid Gul (2013), Thanh Truc and Dinh Thien (2015), Duong

Thi Hong Van and Tran Phuong Nga (2018), Nastiti et al (2019), as well as Tran Thi Thu Trang (2020), the research model has the following general form:

Firm-performance: is the dependent variable measuring the business performane’s enterprise i and t: firm’s name is i at year t

𝛽 0 : is the inception of the regression

𝛽 𝑖 : is the coefficients of the independent 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 − 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑖𝑡

𝑤𝑜𝑟𝑘𝑖𝑛𝑔 − 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑖𝑡 : explanatory variables – the independent variable affects the dependent variable (firm-performance)

𝑐𝑜𝑛𝑡𝑟𝑜𝑙 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠 𝑖𝑡 : control variables inherited from previous research references

𝜀 𝑖𝑡 : is the error term in predicting the value of dependent variable

Summary, the regression model was implemented to explore the correlation between working capital management and the business performance of F&B firms listed on the Vietnamese Stock Exchange in this study, utilizing four corresponding models:

𝑅𝑂𝐴 𝑖𝑡 : Return on assets – represents the business performance of F&B firm (i) at time (t)

𝐼𝐶𝑃 𝑖𝑡 : Number of inventory days (or inventory conversion period) of firm (i) at time (t) – represents the first working-capital variable

𝑅𝐶𝑃 𝑖𝑡 : Number of days receivable (or receivables conversion period) of firm (i) at time (t) – represents the second working-capital variable

𝑃𝐷𝑃 𝑖𝑡 : Number of days payable (or payables deferral period) of firm (i) at time (t) – represents the third working-capital variable

𝐶𝐶𝐶 𝑖𝑡 : Cash conversion cycle of firm (i) at time (t) – represents the final working-capital variable

𝑆𝐼𝑍𝐸 𝑖𝑡 : Enterprise size of firm (i) at time (t)

𝐿𝐸𝑉 𝑖𝑡 : Debt ratio (or financial leverage) of firm (i) at time (t)

𝐶𝑅 𝑖𝑡 : Short-term ratio of firm (i) at time (t)

𝛽 0 : is the inception of the regression

𝛽 1 , 𝛽 2 , 𝛽 3 , 𝛽 4 : are the coefficients corresponding to independent variables in the model

𝜀 𝑖𝑡 : is the error term in predicting the value of dependent variable

3.3 DESCRIPTION OF VARIABLES AND RESEARCH HYPOTHESES DEVELOPMENT

This study focuses on a dependent variable - return on assets (ROA), to measure firm-performance ROA demonstrates the amount of net profit generated per unit of assets invested over a specified business period As mentioned in chapter 2, despite the existence of various indicators such as ROE, Tobin’s Q or Gross

Operating Profit (GOP) in some previous studies mentioned in chapter 3 to gauge a company's performance, ROA is deemed the most crucial criterion for analyzing enterprise performance as it signifies the ultimate efficiency of the business

The study selected ROA as the dependent variable because it serves as a comprehensive measure of profitability, indicating a company's profit in relation to its assets ROA is calculated on total assets so it is not affected by financial leverage and is an objective indicator to evaluate the performance of a business Moreover, this indicator was used to measure business performance or profitability in previous popular studies such as: Adeel Mumtaz et al (2011), Mustafa Afeef (2011), Sajid Gul (2013), Thanh Truc and Dinh Thien (2015), Duong Thi Hong Van and Tran Phuong Nga (2018), Nastiti et al (2019) and Tran Thi Thu Trang (2020)

According to Richards and Laughlin (1980), the importance of the cash conversion cycle (CCC) in evaluating working capital efficiency It measures the duration from purchasing raw materials to collecting payment from customers after product sales, encompassing production and sales processes The cash conversion cycle is determined as follows:

CCC: The cash conversion cycle (days)

RCP: Number of days receivables conversion period

ICP: Number of days inventory conversion period

PDP: Number of days payables deferral period

The determination of the allocation of investments in accounts receivable, inventory, and trade credit from suppliers is manifested in the cash conversion cycle, representing the average duration in days from when a company settles its supplier payment to when it retrieves all outstanding customer payments Therefore, the CCC serves as the metric for evaluating circulating capital Specifically, the relationship between the cash conversion cycle and the business cycle is shown in the figure 3.2 below:

Figure 3.2: Relationship between cash conversion cycle and business cycle

The cash conversion cycle (CCC)

The cash conversion cycle represents the period of time from the time of purchasing raw materials from suppliers until collecting money for product consumption from customers According to Jose et al (1996), the concept of "cash conversion cycle" first introduced by Gitman (1974) is considered a flexible indicator of solvency compared to traditional indicators It considers cash flow by combining information from the balance sheet and income statement to calculate a measure of time This metric is employed to assess the financial stability of the company and the efficiency of its management of working capital (Deloof, 2003) The longer this time lag, the larger the investment in working capital A longer cash conversion cycle might increase profitability because it leads to higher sales The findings indicate the mean timeframe required to convert working capital into cash within a business cycle (Rimo and Panbunyuen, 2010)

Number of days receivables conversion period (RCP)

Accounts receivable is generated when a business provides goods or services on credit to a customer It is important to effectively manage these credit sales to ensure timely cash flow Once the credit period is determined, businesses should monitor their accounts receivable balance carefully to maintain an efficient management process (Nguyen Tan Binh, 2005)

The number of days receivables conversion period serves as a metric for evaluating a company's customer collection policy, indicating the typical duration for obtaining payments from customers It is derived from the average beginning and ending accounts receivable divided by net sales, then multiplied by the average number of days in a year This index measures the speed of collection of receivables (Richards and Laughlin, 1980; Eugene and Joel, 2007) calculated as follows:

𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 Similarly to inventory, a reduced number of days is advantageous in minimizing the cash conversion cycle (Rimo and Panbunyuen, 2010) Deloof (2003) has also demonstrated a significant inverse correlation between the average days receivables and gross profit from operations

Number of days inventory conversion period (ICP)

Inventory accumulates when there is a mismatch between the production timeline and the sales duration The greater the production delays and inefficiencies, the more inventory is needed The inventory conversion period (ICP) is a standard metric for inventory management, depicting the length of time a company holds its inventory before selling it It represents the average number of days that raw materials or finished goods are retained before being sold to customers, as expounded by Nguyen Tan Binh in 2005 One approach to calculating ICP, as described in Richards and Laughlin (1980), Eugene and Joel (2007) and Firer et al (2008) follow:

= 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 × 365𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑The correlation shows that as the number of inventory days increases, the inventory turnover diminishes, resulting in a higher capital investment in inventory Inventory directly affects the cash flow cycle of a business and, if mismanaged, can lead to financial shortfalls According to Deloof's research in 2003, there is a significantly negative association between inventory days and gross operating income, representing a decrease in profitability This relationship indicates that an extension in inventory days results in a decline in sales, ultimately reducing the company's profits

Number of days payables deferral period (PDP)

According to Nguyen Van Thuan (2009), accounts payable is an important type of commercial credit, it represents 40% of current assets of non-financial enterprises This is considered a source of funding through businesses that take advantage of credit purchases from suppliers

The number of days payables deferral period is used as a measure of the supplier's repayment policy It represents the average number of days it takes the company to pay its suppliers While the previous two measures need to be kept low, long accounts payable days are beneficial in shortening the cash conversion cycle (Rimo and Panbunyuen, 2010) This indicator is determined by Richards and Laughlin (1980) and Firer et al (2008) as follows:

RESEARCH METHODOLOGY

To assess the influence of working capital management on the business performance of the specified firms, the gathered dataset will be analyzed using quantitative techniques including the Pooled Ordinary Least Squares (OLS) regression model, Fixed Effect Model (FEM), Random Effect Model (REM), and Feasible Generalized Least Squares (FGLS) method It involves data collection, variable declaration, pairwise correlation examination, descriptive statistics, data presentation, and regression analysis The author will interpret findings using theoretical frameworks and practical survey experiences to illustrate the economic significance of statistically significant correlations among independent variables

The Pooled Ordinary Least Squares (OLS) model

This approach involves using the least squares (OLS) method in regression analysis to calculate the parameters of a simple linear regression function The POLS regression model, which is commonly utilized in broad observational studies, combines data gathered from numerous independent observations into one comprehensive dataset This regression model is defined by the following equation:

In which: Y is the dependent variable; X1, X2, , Xk are the independent variables, β0, β1, β2, , βk are regression parameters, và ε are random noises The aim of POLS is finding the best value of β0, β1, β2, , βk to predict the value of Y

The Fixed Effect Model (FEM) model

This particular method of data analysis is employed to manage the influence of unobserved variables and fixed effects among objects within the sample FEM is utilized in situations with numerous objects in the sample and when fixed effects among objects are significant The standard formula for the FEM model is:

Yit is the value of the dependent variable of object i at time t; αi is the specific fixed effect of object i;

Xit1, Xit2, , Xitk is the value of the corresponding independent variables of the object i at time t; β1, β2, , βk are regression parameters corresponding to independent variables; uit is the random error of object i at time t

However, FEM estimation generates an abundance of variables, leading to the creation of pseudo-variables within the model This may restrict degrees of freedom and contribute to the multicollitnearity of the model Additionally, FEM estimates do not consider enduring agent characteristics

The Random Effect Model (REM) model

Consider this model: Yit = αi + βXit + μit instead of fixed αi which does not change over time in the above model, The REM method assumes it is a random variable In there, αi = α + i (i = 1, 2, , n), while in the original model: Yit = α + βXit + εi + μit, in which εi is the unit cross error component and μit is the combined time series and cross-error component Therefore, when employing the REM method, rather than addressing each specific unit point as associated with the independent variable and isolating that impact as in FEM, the REM method considers the points as random and uncorrelated

However, the OLS, FEM, and REM estimation methods provide reliable results with the assumptions of constant error variance and absence of serial correlation in the regression model If these assumptions are violated, the regression coefficients lose their effectiveness In such cases, the FGLS method is used to address these violations The FGLS method assumes a fully deterministic model with different error variances between groups of objects but constant within each object, producing dependable asymptotic estimation

Additionally, the study will utilize the F-test, Hausman-test and Breusch- Pagan test to determine the most appropriate model Should any deficiencies arise in the model through the defect testing process, the FGLS method will be employed to address them Furthermore, Excel and Stata 15.0 software will serve as instrumental tools to support the analytical process in this research area

Step 1: Learn about the variables and data collected through descriptive statistics

Descriptive statistics are essential for understanding and uncovering the key features of a particular set of data by offering concise summaries of sample data and parameters These are methods used to briefly present data, numerical data representation in a research sample, or a visual chart Descriptive statistics encompass the mean (Average), median (Standard Deviation), maximum value (Max), and minimum value (Min)

Step 2: Multicollinearity test by the variance inflation factor (VIF)

When analyzing correlations, a high coefficient of correlation between variables is indicative of the multicollitnearity To detect cases where a variable has a strong linear correlation with the rest of the model, we investigate the correlation pairs between independent variables by setting up a correlation coefficient matrix to find pairs of variables with high correlation coefficients Hoang Trong and Chu Nguyen Mong Ngoc (2008), Gujarati (1995) suggested that in order to exclude the problem of the multicollitnearity, it is necessary to carefully study the correlation coefficient between variables, if they exceed 0.8, the regression model will have a serious multicollitnearity problem Therefore, to minimize multicollitnearity, the author will remove the variable from the regression model for pairs of variables with a correlation coefficient greater than 0.8

In addition, to ensure accuracy, the author will additionally use the Variance Inflation Factor (VIF) to test the phenomenon of linear multi-addition There are various proposals for the value of VIF, but the most common is 10, which is the maximum level of VIF beyond which multicollinearity can occur (e.g., Hair, Anderson, Tatham and Black, 1995; Kennedy, 1992; Marquardt, 1970; Neter, Wasserman and Kutner, 1989) Other VIF recommendations include 5 (Rogerson, 2001) and even 4 (e.g., Pan and Jackson, 2008) Thus, based on the results of the linear regression test and the VIF coefficient, variables with a VIF greater than 10 will be excluded from the model and regression analysis will be continued until no variable with a VIF value greater than 10, i.e there is no longer a linear multi-additive phenomenon

Step 3: Test the selection between Pooled OLS and FEM

Compare the model according to the Pooled OLS method with the FEM method, the author verifies by F-Test F-test is a test to select OLS and FEM methods, based on the assumption that there is no difference between each origin in spatial units:

- H0: The Pooled OLS model is suitable;

In the case of F-test for p-value less than 0.05, the model FEM is suitable; on the contrary, if the p-value of the F-Test is greater than 0.05, then the Pooled OLS model is suitable If the test results reject H0, it means that the model conforms to the FEM method and moves on to step 4; conversely, proceed to step 5

Step 4: Test the selection between FEM and REM

Compare the model according to the FEM method with the REM method, the author verifies with the Hausman test Hausman test is an audit to select suitable OLS and FEM methods for table data regression:

ANALYZING RESEARCH RESULT

DESCRIPTIVE STATISTICS

Descriptive statistics encompass the mean (Average), median (Standard Deviation), maximum value (Max), and minimum value (Min) The statistical findings elucidate the data pertaining to the observed variables presented in table 4.1 below:

Variable Obs Mean Std Dev Min Max

As per the Stata data statistics, over 264 observations from 44 F&B firms listed in the Vietnam stock market in the period 2017 – 2022 These comprised 1 dependent variable (ROA), 4 independent variables (ICP, RCP, PDP, CCC) and 3 control variables (SIZE, LEV, CR) The results revealed the following insights:

The average value of ROA of research sample is at 0.074 with the lowest value is -0.297 belong to Long An Food Processing Export Joint Stock Company (LAF) in

2018 and the highest one is 0.338 belong to Vinacafe Bienhoa JSC (VCF) in 2020

This result shows that companies exhibited positive and relatively high ROA, while some experienced very low negative profits

The inventory conversion period (ICP) has an average value of 100.574, the highest is 499.729 of Hoang Anh Gia Lai Agricultural JSC (HNG) in 2019 and the lowest is 0.3 of Ha Noi Beer Trading JSC (HAT) in 2019 It shows that during this period, it takes an average of about 100 days for F&B firms mentioned to sell out of inventory

The receivables conversion period (RCP) averaged 96.696, highest at 1090.562 with Hoang Anh Gia Lai JSC (HAG) in 2021 and lowest at 1.413 belong to Ha Noi Beer Trading JSC (HAT) in 2017 It indicated that a sizable sufficient funds collecting from customers requires a fairly long collection period (about 96 days equivalent to more than 03 months)

The payables conversion period (PDP) has the average statistical result at 36.928, the highest value is at 365.47 of Ego Vietnam Investment JSC (HKT) in 2021 and the lowest at 1.13 of Hong Ha Food Investment Development JSC (HSL) in 2017

It proves that F&B companies in sample have to wait about 37 days to be able to pay the supplier for raw materials

The average value of the cash conversion cycle (CCC) is at 160.342 with the firm having the highest value of 1103.014 is Hoang Anh Gia Lai JSC (HAG) in 2021 and also firm with the lowest CCC ratio of -126.622 is Chuong Duong Beverages JSC (SCD) in 2022 Therefore, 160 days – approximately more than 5 months is the amount of time it takes these businesses to convert their company's resources into cash flow

With control variables, the firm size (SIZE) averaged at 12.212, which means that F&B firms in this research generated positive profits and not too much difference in the period 2017 – 2022 In which, the highest firm size belongs to Masan Group Corporation (at 13.953) and the lowest one belongs to Ego Vietnam Investment JSC (at 10.233) It means On the other hand,the financial leverage (LEV) has an average value of about 45% while the short-term ratio (CR) statistics show that the average at

2.423 with standard deviation at 4.8, which the highest value of LEV is 0.919 (CMX

– Camimex Group JSC in 2017), the lowest LEV at 0.012 (Hong Ha Food Investment

Development JSC in 2017); and the highest CR at 61.626 (Hong Ha Food Investment

Development JSC in 2017) , the lowest CR at 0.415 (Hoang Anh Gia Lai Agricultural

Overall, the independent variables of the study model exhibited a considerable disparity between the lowest and highest values This can be attributed to the wide variation in operational scale, inventory management strategies, credit policies and commercial policies among companies in the F&B industry Furthermore, the result of descriptive statistical findings also indicate substantial disparities in firm performance or profitability, and short-term solvency.

CORRELATION MATRIX

An examination of the correlation matrix displayed in table 4.2 reveals the associations among the dependent variables, independent variables, and control variables within the study model:

ROA ICP RCP PDP CCC SIZE LEV CR

According to correlation and regression theory, the pairwise correlation coefficient between independent variables greater than 0.8 is strong correlation, about

0.4 - 0.8 is medium correlation and less than 0.4 is weak correlation The data presented in table 4.2 demonstrate that there is a high, specific correlation coefficient between the independent variables, specially a medium correlation between ICP and CCC of 0.7267, as well as between PDP and CCC of 0.4509 and a strong correlation between RCP and CCC of 0.8890, where CCC = ICP + RCP – PDP Therefore, the author separates it into four different models Creating four models will help evade the significant multicollinearity issue in the estimation model However, a conclusive determination regarding the presence of multicollinearity can be made after analyzing the results of the regression models

To detect multicollinearity in the model, the author uses the variance inflation factor (VIF) There are various proposals for the value of VIF, but the most common is 10, which is the maximum level of VIF beyond which multicollinearity can occur (e.g., Hair, Anderson, Tatham and Black, 1995; Kennedy, 1992; Marquardt, 1970; Neter, Wasserman and Kutner, 1989) Other VIF recommendations include 5 (Rogerson, 2001) and even 4 (e.g., Pan and Jackson, 2008) VIF test results of four models are as follows:

Variable VIF 1/VIF Variable VIF 1/VIF

Variable VIF 1/VIF Variable VIF 1/VIF

Observing the model's regression coefficient table (table 4.3), the VIF coefficients of the variables are < 10 and < 4, so there is no serious multicollinearity phenomenon occurring between variables in the models.

REGRESSION THE RESEARCH RESULT

The correlation analysis above may not be sufficiently reliable to draw conclusions about the relationship between working capital management and business performance As a result, the author conducted regression analysis to assess these connections

4.3.1 Regression models with independent variable (ROA)

The author has used three types of experimental research models: Ordinary linear regression model (Pooled OLS), Fixed effects regression model (FEM), Random effects regression model (REM) for each model The regression results of the above models for each method with the ROA variable are presented in tables 4.4, 4.5, 4.6 and 4.7 The result of running model 1 is following:

Table 4.4 Regression results of ICP variable

Table 4.4 indicated that ICP, SIZE, LEV in 3 models are statistically significant at 1% level except ICP in FEM The CR factor has statistical insignificance of all 3 models OLS, FEM and REM While the results of running model 2 is following:

Table 4.5 Regression results of RCP variable

Table 4.5 shows that the occurrence of p_value < 0.1 with statistical significance level at 10% of CR in the pooled OLS However, RCP has statistical insignificance in FEM and REM The SIZE and LEV are still statistically significant in all 3 models Regarding model 3, the results are as following:

Table 4.6 Regression results of PDP variable

Table 4.6 demonstrated that PDP, SIZE, LEV has statistical significance level at 10% in 3 models Besides, PDP has statistical insignificance REM The CR is only statistically significant at 5% level in OLS Regarding model 4, the results are as following:

Table 4.7 Regression results of CCC variable

Table 4.7 shows that the CCC, SIZE, LEV in 3 models are statistically significant at 1% level except CCC in FEM while the CR factor has statistical insignificance of all 3 models OLS, FEM and REM

Then, the author used the F-test and Hausman test, as synthesized in table 4.8, is conducted to select the appropriate model for testing the phenomena of heteroskedasticity and autocorrelation:

Step 1: Compare between OLS and FEM by F-test

Conclusion Choose FEM Choose FEM Choose FEM Choose FEM

Step 2: Compare between FEM and REM by Hausman test

Prob>chi2 0.0000 chi2(4) = 8.5; Prob>chi2 0.0748

Conclusion Choose FEM Choose FEM Choose FEM Choose REM

Observing the F-test, it is evident that all four models yield a Prob>F value of 0.0000, which is lower than α = 5% Therefore, considering a significance level of 5% and the collected data, running the FEM model is deemed more suitable than OLS due to the presence of fixed influences of the enterprise environment over time

By means of the Hausman test, the study further compared the methods of running FEM and REM models The results of running the stata software showed that Prob>chi2 in each model 1, 2 and 3 was 0.0407, respectively; 0.00407 and 0.0000 both mean P_value = 0.0000 < α =5% Therefore, there are sufficient grounds to conclude that impact estimation (FEM) is more appropriate than random impact estimation (REM) with regression models with ICP, RCP and PDP variables However, in model 4 – the regression model with the CCC variable gives the result Prob>chi2 = 0.0748 > 0.05 (α = 5%) This means that the method of running the REM model is more suitable than FEM only with the model 4

For 03 models (1,2 and 3) that conform to the FEM estimation method, the author uses the Modified Wald test command (xttest 3) to verify whether the model is changed by variance The results are shown in table 4.9 as follows:

Table 4.9 Results of the Modified Wald test

Working capital variable P_value Heteroskedasticity

For model 4 consistent with the REM estimation method, the author uses Breusch and Pagan Lagrangian multiplier test (xttest0) to test heteroscedasticity The results are shown in table 4.10 below:

Table 4.10 Result of Breusch and Pagan Lagrangian multiplier test

The test results of the above 4 models show that there is a change in variance with P_value = 0.0000 < α (= 5%) Thus, it is necessary to carry out the correction of the defect of the regression model using the GLS regression method

To test whether there is an autocorrelation phenomenon or not, the Wooldridge test method is used to test this phenomenon Table 4.11 below is the results compiled from Stata software to test the autocorrelation phenomenon:

Table 4.11 Results of the Wooldridge test

Working capital variable P_value Autocorrelation

The test results show that from model 1 to model 4, the P_value is: 0.0999, respectively; 0,0929; 0.0568 and 0.0944 The P_value values are all greater than α (5%), meaning that the variables in each of the above models do not occur autocorrelation.

REGRESSION RESULTS WITH FGLS

After performing regression and verification, the selection of models whether FEM or REM from the above 04 models showed the phenomenon of variable variance, the other two phenomena (multicollinearity and autocorrelation) did not seem to be serious Therefore, the author proceeds to overcome the detected defect of the model using the GLS method with the support of stata software The results of 04 GLS models that have been overcome defects are presented in table 4.12 as follows:

Table 4.12 Regression results of 4 models with GLS

Variables GLS (1) GLS (2) GLS (3) GLS (4)

Table 4.12 shows that the results of the model are consistent and have the same results as expected on the relationship between determinants of working capital management affecting performance business of the F&B firms listed on the Vietnam Stock Market With a total of 264 observations in the dataset, the GLS regression finds the impact of factors affecting the capital structure of the F&B firms is statistically significant at 1% Specifically, the regression equation has the form respectively 04 models as follows:

ROA = - 0.195 - 0.000184×ICP + 0.0317×SIZE - 0.223×LEV - 0.00181×CR + ε

ROA = - 0.188 - 0.0000896×RCP + 0.0299×SIZE - 0.216×LEV - 0.00104×CR + ε

ROA = - 0.205 - 0.000198×PDP + 0.0312×SIZE - 0.219×LEV - 0.00123×CR + ε

ROA = - 0.167 - 0.000109×CCC + 0.0287×SIZE - 0.209×LEV - 0.0012×CR + ε

As a result, the general conclusion of four hypotheses in this study is summarized in the following table 4.13:

Factors Theoretical impact Hypothetical impact Result Conclusion

Source: Compiled by the author

RESEARCH RESULTS DISCUSSION

The study selects the results obtained from the 04 GLS models that are the official results Specifically, the thesis provides some of the following discussion:

Firstly, with the statistical significance at 1%, denoted by a p-value of 0.000 and a correlation coefficient of -0.000184, the regression estimation coefficient of ICP signifies that the relationship between ICP and ROA holds strong significance

It further implies that shorter inventory periods are linked to higher profitability, as reducing the inventory time translates to lower storage and warehousing costs for businesses while mitigating the risk of product damage According to financial management theory, the transformation of enterprise capital through cash, inventory, accounts receivable, and back to cash form in each business cycle underpins the impact on business profitability A disruption in the capital turnover process has implications for business profitability, suggesting that shorter storage periods, payment cycles, and cash flow cycles lead to higher profitability A shorter storage period denotes swifter inventory turnover, thus leading to enhanced profitability This outcome supports the hypothesis and aligns with the findings of the majority of previous studies, including those by Adeel Mumtaz et al (2011), Mustafa Afeef (2011), Sajid Gul (2013) and Thanh Truc and Dinh Thien (2015) Therefore, this study accepts the hypothesis H1 about the negative relationship between ICP and business performance

Secondly, model 2 indicates that the regression coefficient for the RCP variable is -0.0000896, with a p-value of 0.000, demonstrating a high statistical significance at 1% This outcome indicates that reducing the collection time for payments from customers will positively impact the operational efficiency of F&B businesses in Vietnam This aligns with financial management theory, indicating that given constant factors, an increase in the average collection period leads to higher accounts receivable, thus diminishing the enterprise's actual income flow and indirectly affecting its operational efficiency Receivables represent a significant portion of these enterprises' capital structure Several businesses in the sample favored extending credit to customers as a strategy to boost revenues As a result, the hypothesis of model 2 (H2) is in complete agreement with prior research conducted by Adeel Mumtaz et al (2011), Mustafa Afeef (2011), Sajid Gul (2013), Thanh Truc and Dinh Thien (2015), Duong Thi Hong Van and Tran Phuong Nga (2018), as well as Tran Thi Thu Trang (2020) Consequently, the research result accepts the hypothesis H2 about the negative relationship between RCP and business performance

Thirdly, the results of the study indicates that the estimated coefficient of PDP is -0.000198 and the p-value is 0.003 It demonstrates that the negative relationship between the average payment period and the business performance of the enterprise in the observation sample for the period 2017 – 2022 with the statistical significance level of 1% Thus, the business efficiency of the business will increase when the time to pay suppliers is shortened Although the easing of the debt repayment period helps businesses legally capitalize from the appropriation, the existence of interest rates from the credit policy of the provider is inevitable, leading to the control and minimization of the payment time of this amount, which also contributes to promoting firm performance This can be explained by the fact that F&B companies listed on the stock exchange tend to have higher profits and surplus funds compared to other industries Prolonged accounts payable periods result in increased trade credit interest payments, putting economic strain on F&B firms To reduce costs and maintain a positive reputation, these companies prioritize prompt supplier payments and opt for shorter payment timelines Realizing that the long receivables conversion time increased commercial credit interest payments that caused economic stress in the volatile period 2017 – 2022, these companies prioritized quick payments to suppliers and chose shorter payment periods to reduce costs, protect finances and maintain a positive reputation of the business This strategy not only safeguards customer trust in firms listed on stock exchange but also enhances business performance in long term when controlling debt closely and reasonably according to the economic situation This result is consistent with Mustafa Afeef (2011), Thanh Truc and Dinh Thien (2015) but opposite to the expectation Therefore, this study rejects hypothesis 3 and accepts the result that between PDP and business performance has a negative effect

Fourthly, the CCC illustrates how the efficiency of managing a company's working capital can significantly impact its business performance In model 4, the estimated coefficient of CCC is -0.000109 with a p-value of 0.000, indicating its statistical significance at the 1% level As the CCC decreases, the operational efficiency of the surveyed businesses improves CCC represents the duration between the company's payment for input materials and the collection of funds from the customer In the context of working capital management theory, idle cash is regarded as unproductive, and delaying its movement can lead to missed opportunities for generating profits Accordingly, a reduction in CCC can enhance the effectiveness of corporate financial management These findings align with existing theory and prior research by scholars such as Mustafa Afeef (2011), Sajid Gul (2013), Thanh Truc and Dinh Thien (2015), and Duong Thi Hong Van and Tran Phuong Nga (2018) The negative relationship between CCC and profitability suggests that minimizing investments in circulating capital can help businesses achieve higher profitability by ensuring that cash is not tied up for prolonged periods but is swiftly leveraged to generate returns Consequently, this study accepts hypothesis 4 that the cash conversion cycle (CCC) negatively impacts on business performance

In addition, the control variables consist of enterprise size (SIZE) and financial leverage (LEV) that exhibited statistically significant effects at a 1% level The SIZE positively impacts on business performance which along with the research result of Tran Thi Thu Trang (2020), whereas the LEV shows a negative effect like the result of Nastiti et el (2019) While the short-term ratio (CR) did not have statistical significance that coincides with result from Duong Thi Hong Van and Tran Phuong Nga (2018) This indicates that within the food and beverage industry, larger enterprises with lower debt ratios outperform smaller businesses that rely more heavily on debt financing This presents challenges for businesses and requires solutions to enhance the efficacy of using fixed assets and managing enterprise debts

In this chapter, the author has gone into the main content of the topic, that is, the author has analyzed the impact of working capital management on the business performance of F&B firms in Vietnam Besides, the research results have partly answered the question posed in the research objective of the topic The selected variables and their integration into the model, along with the use of financial data from audited enterprises, are clearly outlined The study includes 44 food and beverage enterprises listed in Vietnam from 2017 to 2022 The results suggest the potential for influencing business profitability through policies affecting the management of working capital.

CONCLUSION AND RECOMMENDATION

CONCLUSION

Effective management of working capital is thought to have a positive impact on business performance Metrics like cash conversion cycles, inventory conversion period, receivable conversion period, and payable defferal period can impact business performance differently, with varying influences based on specific studies, industry, and economic context This study evaluates the influence of working capital management on the performance of food and beverage businesses in Vietnam, resulting in the following findings:

The study was successful in achieving the original objectives, including (1) measuring the influence and analyzing direction of activity of the working capital management affecting the business performance of the F&B industry enterprises listed on the Vietnam Stock Exchange, (2) proposing some policy implications to support the F&B firms listed on Vietnamese stock market improve their business operation based on the research findings

To achieve the research objective, the author used data from 44 F&B enterprises listed on the Vietnam Stock Exchange from 2017 to 2022 provided by Fiinpro-X of Fiingroup to conduct the analysis and stata 15.0 software to help with analyzing the model data processing Through the research, the author has systematized theories about working capital management and business performance such as concepts, impact factors, measurement indicators

Scientifically, regression analysis results on the impact of working capital management on the profitability of food enterprises listed on the Vietnam stock market show that the inventory turnover period (ICP), average collection period (RCP), average payment period (PDP) and cash conversion cycle (CCC) have an adverse impact on profitability (ROA) In addition, the study also shows the relationship of enterprise size (SIZE), leverage ratio (LEV), short-term solvency (CR) to return on total assets (ROA)

In theory, on the basis of theory and research on the impact of working capital management on profitability, this result shows that food and beverage firms can consider measures to reduce cash conversion cycles, inventory conversion period, receivable conversion period, and payable defferal period to improve business performance

Based on the analysis results, the author made recommendations for businesses aiming to support F&B companies listed on the Vietnam Stock Exchange to improve their management with working capital for their business activities Finally, the author stated the limitations of the thesis and future research directions.

RECOMMENDATION

The analysis indicates a need for companies to reassess their financial management practices to boost profitability (business performance) and enhance shareholder asset value Improving cash flow cycles and effective working capital management could heighten company profitability by minimizing receivables, inventory periods, and payables, thus strengthening liquidity and overall financial position From this results, the author would like to propose some foundational suggestions to support F&B businesses in better understanding the impact of working capital policies on firm performance (ROA) as follows:

Firstly, companies can decrease inventory turnover by minimizing inventory levels, employing the just-in-time inventory management model This approach aids in eliminating superfluous inventory and focusing on producing specific quantities, ensuring fresh products with consistent quality for consumers Furthermore, businesses can explore sourcing from multiple small suppliers, opting for nearby suppliers with short lead times to reduce waiting times, and optimizing warehouse product placement to enhance efficiency in transfer and production Proactively importing goods can also ensure timely access to raw materials, thereby maintaining supply quality

Secondly, for account receivables management, a crucial step is tightening customer credit terms to expedite capital recovery and accelerate the cash cycle In the long term, firms should devise suitable credit policies, including customer assessment criteria such as liquidity, reputation, collateral value, and customer conduct, to make informed decisions regarding credit extension Additionally, effective accounts receivable management entails vigilant monitoring to prompt timely adjustments to the trade credit policy based on customer credit ratings This proactive approach allows for tailored debt control measures, facilitating debt recovery and nurturing positive customer relationships

Thirdly, it is crucial for food businesses to ensure prompt settlement of debts to suppliers in accounts payable management This not only helps in reducing debt expenses but also enhances the business's reputation By negotiating favorable terms with suppliers, closely monitoring inventory levels, and maintaining a proactive approach to account management, enterprises can significantly improve their financial standing Efforts to identify potential issues and prevent late payments will not only enhance debt management but also lead to greater financial transparency, efficient cash management, and stronger supplier relationships

Lastly, while the cash conversion cycle is influenced by various components of working capital management, companies should still implement effective measures to control cash flow Establishing a robust cash flow management system is essential to optimize the liquidity of the business, ensuring both solvency and capitalizing on investment opportunities As the availability of cash often fluctuates, businesses should utilize cash reserve models to mitigate risks associated with this instability and proactively balance future revenues and expenditures Forecasting cash flows and fund utilization is vital, enabling companies to flexibly plan for income collection and expenditure Employing cash flow synchronization techniques can help shorten both the collection and payment cycles, thereby reducing the need for extensive cash reserves and boosting overall profitability Once regular cash reserves have been determined, enterprises should implement policies and procedures to minimize operational risks and losses Any idle funds can be utilized for short-term investments such as loans, securities, or joint venture capital contributions.

LIMITATION AND RECOMMENDATION FOR FURTHER RESEARCH

Even though the research hypotheses have been addressed, the study obtained data from 44 food and beverage industry businesses over a span of 6 years, from 2017 to 2022 with 264 observations However, the dataset is limited as of early 2024, as the 2023 financial records are not thoroughly audited The data collection in this study is quite small compared to the number of F&B companies listed on the Vietnam stock exchange, so it is still not guaranteed the representativeness of the industry Furthermore, the focus of the study is solely on assessing business performance using return on assets (ROA), without taking into account other relevant indicators such as ROE, ROS, Tobin's Q, and potential influencing factors (control variables) like inflation rate, unemployment rate, and economic growth rate

To enhance the next study, the author suggests expanding the sample size over a longer timeframe to enhance relevance, or possibly broadening the assessment to include the impact of working capital management on business performance across all sectors of the economy Additionally, the next study can incorporate a range of other performance indicators (Tobin's Q, ROS, etc.) and consider the aforementioned control variables.

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1 Dương Thị Hồng Vân và Trần Phương Nga (2018) Ảnh hưởng của quản trị vốn lưu động tới khả năng sinh lời của doanh nghiệp: Bằng chứng từ các doanh nghiệp sản xuất vật liệu xây dựng tại Việt Nam Tạp chí Khoa học & Đào tạo Ngân hàng, số 195, 39-47

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4 Trần Thị Thu Trang (2020) Nghiên cứu mối quan hệ giữa quản trị vốn lưu động và hiệu quả tài chính của các công ty nhựa niêm yết trên thị trường chứng khoán việt nam Tạp chí Khoa học và Thương mại, số 147, 11-16

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LIST OF 44 F&B FIRMS IN VIETNAM USED IN THE RESEARCH

No Code Name of firm in Vietnam

2 ABT Thủy sản Bến Tre

3 ACL Thủy sản CL An Giang

5 ANV Thủy sản Nam Việt

6 ASM Tập đoàn Sao Mai

8 BCF Thực phẩm Bích Chi

10 BNA Đầu tư SX Bảo Ngọc

11 CAN Đồ hộp Hạ Long

13 DAT ĐT Du lịch và PT Thủy sản

15 HAG Hoàng Anh Gia Lai

16 HAT TM Bia Hà Nội

17 HHC Bánh kẹo Hải Hà

18 HKT Đầu tư Ego Việt Nam

19 HNG Nông nghiệp Quốc tế HAGL

20 HSL Thực phẩm Hồng Hà

21 IDI Đầu tư và PT Đa Quốc Gia

23 KHS Thủy sản Kiên Hùng

24 LAF Chế biến Hàng XK Long An

25 LSS Mía đường Lam Sơn

26 MCF Cơ khí và Lương thực Thực phẩm

29 NSC Tập đoàn Giống cây trồng Việt Nam

30 OCH Khách sạn và Dịch vụ OCH

34 SCD Giải khát Chương Dương

35 SGC Bánh phồng tôm Sa Giang

36 SLS Mía đường Sơn La

37 SMB Bia Sài Gòn - Miền Trung

38 SSC Giống cây trồng Miền Nam

39 TAR Nông nghiệp CN cao Trung An

41 THB Bia Hà Nội - Thanh Hóa

43 VHC Thủy sản Vĩnh Hoàn

RESULTS OF RESEARCH FROM STATA 15.0 SOFTWARE

Appendix 2.1: Check space and time variables

Appendix 2.3: Correlation matrix between independent variables

Appendix 2.4: Multicollinearity test by VIF VIF test of model 1

Appendix 2.5: Pooled OLS regression results

1 Pooled OLS regression result of model 1

2 Pooled OLS regression result of model 2

3 Pooled OLS regression result of model 3

4 Pooled OLS regression result of model 4

1 FEM regression result of model 1

2 FEM regression result of model 2

3 FEM regression result of model 3

1 REM regression result of model 1

2 REM regression result of model 2

3 REM regression result of model 3

4 REM regression result of model 4

Appendix 2.8: Pooled OLS, FEM and REM regression results

1 Results of the Modified Wald test for model 1

2 Results of the Modified Wald test for model 2

3 Results of the Modified Wald test for model 3

4 Results of the Breusch and Pagan Lagrangian multiplier test for model 4

1 Result of the Wooldridge test for model 1

2 Result of the Wooldridge test for model 2

3 Result of the Wooldridge test for model 3

4 Result of the Wooldridge test for model 4

Appendix 2.12: Regression results with FGLS