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

TRAN NHU QUYNH

HO CHI MINH CITY, 2024

NGUYEN THI NHU QUYNH PH.D

HO CHI MINH CITY, 2024

ABSTRACT

The purpose of this thesis is to investigate the impact of the working capital management on the performance business of the food and beverage (F&B) companies listed on HOSE and HNX in Vietnam Stock Exchange There by offering some recommendations to support F&B firms improve their working capital for their business activities Data was collected from the audited financial report of 44 the F&B firms listed on Vietnam’s stock collected from the published annual financial market from 2017 to 2022 and were analyzed by using Stata.15 software Thesis used Feasible Generalized Least Squares (FGLS) regression models to ensure the effectiveness of the chosen models The dependent variable is return on asset (ROA) The thesis also used four independent variables are inventory conversion period (ICP), receivables conversion period (RCP), payables deferral period (PDP), cash conversion Cycle (CCC) and three control variables are Firm size (SIZE), financial leverage (LEV), current ratio (CR) The research results show that they all have a negative effect on the business performance

Keywords: Working capital management, performance business, food and

beverage company

TÓM TẮT

Mục tiêu của khóa luận này là nghiên cứu tác động của quản trị vốn lưu động đến hiệu quả kinh doanh của các công ty thực phẩm và đồ uống (F&B) niêm yết trên HOSE và HNX tại Sở Giao dịch Chứng khoán Việt Nam Qua đó, bài viết đưa ra một số khuyến nghị nhằm hỗ trợ các doanh nghiệp F&B cải thiện hoạt động kinh doanh của mình thông qua việc quản trị vốn lưu động Dữ liệu được thu thập từ báo cáo tài chính đã kiểm toán của 44 doanh nghiệp F&B niêm yết trên chứng khoán Việt Nam được công bố thường niên từ năm 2017 đến năm 2022 và phân tích bằng phần mềm Stata.15 Khóa luận này sử dụng mô hình hồi quy bình phương tối thiểu tổng quát hóa khả thi (FGLS) để đảm bảo tính hiệu quả của các mô hình đã chọn Biến phụ thuộc là tỷ suất sinh lợi trên tài sản (ROA) và xem xét tác động của 4 biến độc lập là thời gian chuyển đổi hàng tồn kho (ICP), thời gian chuyển đổi khoản phải thu (RCP), thời gian trì hoãn phải trả (PDP), chu kỳ chuyển đổi tiền mặt (CCC) với ba biến kiểm soát là quy mô doanh nghiệp (SIZE), đòn bẩy tài chính (LEV) và tỷ số thanh toán hiện thời (CR) Kết quả nghiên cứu cho thấy chúng đều có tác động ngược chiều đến hiệu quả kinh doanh

Từ khóa: Quản trị vốn lưu động, hoạt động kinh doanh, doanh nghiệp thực

phẩm và đồ uống

DECLARATION

This thesis represents the original research efforts of the author, presenting genuine and impartial research findings without any previously published or plagiarized content, except for appropriately cited references within the thesis By signing this, I validate that all the procedures, methodologies, and data are accurately documented I have duly acknowledged all those who have contributed significantly to the completion of this work I strongly assert the veracity and correctness of all the information and statements provided in this document to the best of my understanding

Ho Chi Minh City, April 17th, 2024

The Author

Tran Nhu Quynh

ACKNOWLEDGEMENT

Throughout the course of writing this graduation thesis, I have been fortunate to receive tremendous help, support, and encouragement from various individuals and groups First and foremost, I am deeply grateful to lecturers at Ho Chi Minh City University of Banking for imparting profound knowledge and honing my skills in the field, thereby providing me with a strong foundation on which to build This has greatly facilitated my ability to assimilate and apply this knowledge in future endeavors

I also wish to extend a special thanks to Nguyen Thi Nhu Quynh Ph.D, my supervisor, for her dedicated guidance, invaluable advice, and assistance in identifying and retifying errors, as well as offering crucial recommendations to enhance the quality of my thesis

Lastly, I am profoundly thankful to my family for their unwavering support throughout my academic journey and life Their encouragement and sacrifices have played a pivotal role in my completion of this thesis I express my sincere appreciation and love for their exceptional care and dedication

Acknowledging my limited knowledge and practical experience, there may still be certain inadequacies in this thesis I earnestly request the esteemed professors and lecturers to impart their feedback in order to aid me in refining this thesis and advancing my knowledge for future endeavors

Ho Chi Minh City, April 17th, 2024

The Author

Tran Nhu Quynh

LIST OF ABBREVIATIONS ix

LIST OF FIGURES AND TABLES xi

1.7 RESEARCH STRUCTURE 5

CONCLUSION OF CHAPTER 1 6

CHAPTER 2 LITERATURE REVIEW 7

2.1 OVERVIEW OF WORKING CAPITAL MANAGEMENT 7

2.2 OVERVIEW OF BUSINESS PERFORMANCE 8

2.2.1 Definition of business performance’s firm 8

2.2.2 Measurement of business performance’s firm 9

2.3 THE IMPACT OF WORKING CAPITAL MANAGEMENT ON THE BUSINESS PERFORMANCE OF FIRM 11

2.3.1 The impact of inventory management on firm performance 12

2.3.2 The impact of accounts receivable management on firm performance 13

2.3.3 The impact of accounts payable management impact on firm performance 13

2.4 PREVIOUS EMPIRICAL EVIDENCES 14

2.4.1 Experimental evidence from abroad 14

2.4.2 Experimental evidence in Vietnam 16

3.3 DESCRIPTION OF VARIABLES AND RESEARCH HYPOTHESES

4.3 REGRESSION THE RESEARCH RESULT 53

4.3.1 Regression models with independent variable (ROA) 53

4.3.2 Regression results test 57

4.3.2.1 Heteroskedasticity test 57

4.3.2.2 Autocorrelation test 58

4.4 REGRESSION RESULTS WITH FGLS 59

4.5 RESEARCH RESULTS DISCUSSION 60

CONCLUSION OF CHAPTER 4 64

CHAPTER 5 CONCLUSION AND RECOMMENDATION 65

LIST OF ABBREVIATIONS

Abbreaviations Definition

FGLS Feasible Generalized Least Squares

ROA Return On Asset

LIST OF FIGURES AND TABLES

LIST OF FIGURES

Figure 3.1 The research process 27

Figure 3.2: Relationship between cash conversion cycle and business cycle 32

LIST OF TABLES Table 2.1: Summary of relevant previous empirical studies 18

Table 3.1: Synthesis of variables and expectation in the model 40

Table 4.1 Descriptive statistics 49

Table 4.2 Correlation matrix 51

Table 4.3 Results of VIF 52

Table 4.4 Regression results of ICP variable 53

Table 4.5 Regression results of RCP variable 54

Table 4.6 Regression results of PDP variable 55

Table 4.7 Regression results of CCC variable 55

Table 4.8 Testing models selection 56

Table 4.9 Results of the Modified Wald test 57

Table 4.10 Result of Breusch and Pagan Lagrangian multiplier test 58

Table 4.11 Results of the Wooldridge test 58

Table 4.12 Regression results of 4 models with GLS 59

Table 4.13 Results of hypotheses 60

CHAPTER 1 INTRODUCTION

1.1 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 & Memiş Karataş, 2021)

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

1.2 RESEARCH OBJECTIVES 1.2.1 The main objective

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

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

1.3 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?

1.4 RESEARCH SUBJECTS AND SCOPE 1.4.1 Research subjects

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

1.4.2 Research scope

1.4.2.1 Space scope

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

1.4.2.2 Time scope

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

1.5 RESEARCH METHODOLOGY AND DATA

1.5.1 Research methodology

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

1.5.2 Research data

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

1.6 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

1.7 RESEARCH STRUCTURE Chapter 1: Introduction

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

Chapter 2: Literature review

In this chapter, the thesis focuses on systematizing the theoretical basis related to working capital management and its impact on business performance of food and beverage companies listed on the Vietnamese stock market

In addition, chapter 2 reviews and overviews previous empirical studies in Vietnam and around the world related to the topic of the impact of working capital management on business performance of enterprises This is the premise for the thesis proposing a research model in chapter 3

Chapter 3: Methodology

Chapter 3 presents the research process and proposes the research model from the previous empirical studies Besides, this chapter also presents the methods and data of the research

Chapter 4: Analyzing research result

Chapter 4 focuses on and evaluating the appropriateness of the data by utilizing descriptive statistics, considering multicollinearity, performing regression estimates and analyzing the research results

Chương 5: Conclusion and recommendation

The final part of the thesis will present the conclusion of the research results and propose suggestions based on them Additionally, it will address limitations and propose potential avenues for future research

CONCLUSION OF CHAPTER 1

In Chapter 1, an overview of various aspects pertaining to the research topic is presented, such as research objectives, tasks, issues, questions, scope, methods, and resources This comprehensive examination lays the foundation for the subsequent research steps As a result, the next chapter will concentrate on laying the groundwork for theory and reviewing the previous empirical studies around the world and in Vietnam related to the topic of the impact of working capital management on business performance of enterprises.

CHAPTER 2 LITERATURE REVIEW

2.1 OVERVIEW OF WORKING CAPITAL MANAGEMENT Working capital

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

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)

2.2 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:

Return on Asset (ROA)

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 𝐴𝑠𝑠𝑒𝑡 =𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

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

Return on Equity (ROE)

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:

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝐸𝑞𝑢𝑖𝑡𝑦

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

Tobin’s Q

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

2.3 THE IMPACT OF WORKING CAPITAL MANAGEMENT ON THE BUSINESS PERFORMANCE OF FIRM

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

2.4 PREVIOUS EMPIRICAL EVIDENCES 2.4.1 Experimental evidence from abroad

In the study conducted by Deloof (2003), a dataset of 1,009 large Belgian 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

non-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

2.4.2 Experimental evidence in Vietnam

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

Does Working

Capital Management

Affect Profitability

of Belgian Firms?

1009 Belgian firms, 1992 – 1996 (5045 observations)

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

Huynh Phuong Dong and

Jyh-tay Su (2010)

The relationship

between working capital management

and profitability: a

Vietnam case

130 firms on Vietnam stock market,

2006 – 2008 (390 observations)

Data panel regression with fixed

effect estimation

model

There is a strong negative relationship between profitability, measured through gross operating profit, and the cash conversion cycle This means that as the cash conversion cycle increases, it will lead to declining profitability of firm

Adeel Mumtaz

et al (2011)

Impact of Working

Capital Management

on firms’ performance:

Evidence from Chemical sector listed firms in KSE-

100 index

22 chemical firms in KSE, 2005-

2010 (132 observations)

Using the Pooled

OLS ordinary

linear regression

model

The study findings indicated a negative correlation between working capital and firm performance, and a positive relationship between firm size and profitability

Profitability shows a negative association with the debt utilized by firms, consistent with the pecking order theory

Mustafa Afeef (2011)

Analyzing the Impact of

Working Capital

40 SMEs Pakistani listed in KSE, 2003 –

Using univariate

linear regression

Effective management of working capital significantly influences

Management on the Profitability

of SMEs in Pakistan

2008, (240 observations)

model method

profitability Small enterprises in particular are expected to experience a more substantial effect on their profits due to a large portion of their assets being current, and a significant fraction of their liabilities being related to current items

Sajid Gul (2013)

Working capital management

and performance of SME sector

55 SME’s in different sectors, 2006

– 2012 (385 observations)

Regression estimation method for

panel data

The findings indicate that the number of days' accounts payable is positively correlated with profitability, while the average collection period, inventory turnover, and CCC are inversely related to performance.Additionally, size and sales growth have a positive effect on profitability, whereas the debt ratio has a negative impact

Tu Thi Kim

The relationship

208 companies

Pooled OLS,

The research revealed a significant inverse

Thoa and Nguyen Thi Uyen

Uyen (2014)

between circulating

capital management

and profitability:

Empirical evidence in

Vietnam

on HOSE and HNX, 2006 – 2012

(1456 observations)

FEM and generalized

least squares (GLS) for panel data

correlation between receivable period (RP), inventory period (IP), and payable period (PP) with gross operating profit (GOP) It

companies can enhance profits by reducing the collection, inventory, and accounts payable periods

Thanh Truc and

Dinh Thien (2015)

The impact of working capital policy

on the performance of companies

listed on the Vietnamese stock market

564 firms listed in Vietnam

Stock Exchange, 2006 – 2013

(4512 observations)

The FEM and REM regressions

are employed

for unbalanced

– panel data

The tests suggested that the fixed effects model offers a better explanation for the relationship between independent variables and firm profitability The results reveal statistically significant negative associations between ROA and working capital conversion days, including inventory conversion period, average collection period, payables

deferral period, and cash conversion cycle Moreover, the study shows a positive correlation between current assets turnover, the proportion of current assets in total assets, and ROA

Micheal, Segun

and Taiwo (2017)

Impact of working

Capital Management

on Financial Performance of Quoted Consumer

Goods Manufacturing

Firms in Nigeria

15 quoted consumer

goods manufacturin

g firms in Nigeria, 2005 – 2014

(150 observations)

Using correlation

and panel regression

analysis

The results showed that effective management of working capital improves financial performance It was found that there is a negative correlation

Conversion Cycle (CCC) and financial performance, while there is a positive correlation between Average Collection Period (ACP) and financial performance Duong

Thi Hong Van and

Tran

The impact of working

capital management

42 construction

material manufacturin

Panel data regression with the

pooled

Studies indicated that elements of working capital management, such as the average

Phuong Nga (2018)

on business profitability:

Evidence from building

materials manufacturers

in Vietnam

g enterprises listed on the

Vietnam stock market,

2012 – 2016 (210 observations)

OLS, FEM, REM

collection period and average payment period, influence the profitability of total assets Furthermore, the research findings demonstrate that factors like business size, debt index, and fixed asset ratio also have an

profitability of total assets

Nastiti et al (2019)

Working capital management

and its influence on

profitability and sustainable

growth

136 manufacturing firms listed

in the Indonesian

Stock Exchange, 2010 – 2017

(1088 observations)

Data panel regression with fixed

effect estimation

model

The report showed that company performance is significantly affected by working capital Although the direct impact on sustainable growth is minimal, there is a significant indirect influence through company performance

Makoni and Ndonwab

ile (2020)

The Nexus between Working Capital Management

and Profitability:

The Case of Listed Food and Beverage

Firms in South Africa

12 F&B firms listed

on the Johannesbur

g Stock Exchange

(JSE) in South Africa,

2007 – 2016 (120 observations)

Panel data regression with the

pooled OLS, FEM,

REM, Generalize

d Method of Moments

(GMM) model, the generalized

least squares (GLS) and

the least squares dummy variable (LSDV)

established a negative relationship between ICP and profitability, as well as between ACP and profitability However, the study determined that there is a positive relationship between APP and profitability for their sampled firms

Tran Thi Thu Trang (2020)

Study on the relationship

between working capital management and financial performance

28 plastic companies

listed on Vietnam stock market,

2014 – 2019 (168 observations)

Using regression

methods according to fixed and

random effects models

The research findings indicate that the random effects model provides a better explanation for the relationship between independent variables and the company's financial

of plastic companies listed on the

Vietnam’s Stock Exchange

based on balanced panel data

performance

Additionally, the study reveals a positive correlation between inventory turnover days, current liquidity ratio, and profit on total assets ratio, as well as a negative correlation between accounts receivable turnover days and revenue on total assets ratio

Source: Author summarizes

2.5 RESEARCH GAP

Overall, several studies continue to be limited by factors such as small term research samples and inadequate representation of companies Moreover, there are many previous studies in Vietnam that have evaluated the impact of working capital on business performance or enterprise profitability However, most of these research are all businesses listed on stock exchanges or a number of separate industries There have not been many specific studies evaluating businesses in the food and beverage industry in recent years Therefore, this study examines the impact of working capital management on business performance in a specific industry, F&B, to propose relevant policy implications with an aim of supporting the firms mentioned

short-CONCLUSION OF CHAPTER 2

Throughout the establishment and growth stages of a company, an overwhelming majority of a financial manager's efforts focus on effectively managing working capital, which heavily impacts the business performance Achieving optimal levels is crucial for businesses As a result, comprehending the theoretical aspects related to working capital and firm performance provides an in-depth understanding, laying the necessary groundwork to ascertain the correlation between the two Additionally, analyzing empirical studies worldwide aids in shaping this relationship, serving as a valuable foundation for further research and the development of research hypotheses for the study

CHAPTER 3 METHODOLOGY

3.1 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:

Figure 3.1.The research process

Source: Author summarizes

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

Writing the report