BANKING ACADEMY FINANCE FACULTY GRADUATION THESIS TITLE: THE IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PROFITABILITY OF REAL ESTATE ENTERPRISES LISTED IN THE VIETNAM... ASSESSMENT OF
Urgency of the topic
The whole world fell into a severe financial crisis in the period 2007-2009, which resulted in the collapse of numerous enormous businesses around the globe, which attracted great concern from financial businesses managers to focus more on how to effectively manage organizational resources, especially working capital management (Mielcarz et al., 2018) Theoretically, working capital decisions affect both the liquidity and profitability of the firm (Raheman & Nasr, 2007) Furthermore, optimal working capital management positively contributes to building up a company's worth (Bhatia & Srivastava, 2016)
According to Ross, Westerfield, and Jaffe (2016), financial managers need to carefully examine a number of crucial issues, including working capital management (WCM), besides capital budget (investment decision), capital structure (financial decisions), and the dividend policy of each company Working capital also known as net working capital or short-term working capital (Lamptey et al., 2017) is a resource/capital that is dedicated to the smooth running of day-to-day operations of enterprises (representing the operating liquidity of the firm), so that the enterprise always has enough cash to meet its regular short-term liabilities when due in full and on time Net working capital is the lifeblood of business entities, and working capital management is considered an imperative role of financial management (Afrifa,
2013) According to the research of Ross, Westerfield, and Jordan (2010), mathematically, WCM is defined as current assets minus current liabilities, WC (working capital is related to accounts receivable, inventory, and accounts payable are the main components of the business) Working capital is the most important factor when it comes to maintaining the liquidity, solvency, viability, and profitability of the business
It is important that WCM can improve the performance of a company because the goal of businesses is to maintain a balance in day-to-day operations to maximize profits and minimize liquidity risks A company's day-to-day operations can be negatively affected by a lack of working capital Excess working capital will increase
2 opportunity costs, especially in organizations that use external sources of financing for working capital Therefore, working capital should be managed at an optimal level in a business
It is essential to comprehend the factors and driving forces that increase or decrease the WC to the optimal level that will lead to improved performance of the company Moreover, WCM plays an important role in business management, it can directly affect the success or failure of a business in business because WCM affects the ability to enterprise profitability As a result, this research becomes more important for all analysts and investment policymakers, who can rely on it to make decisions and get an idea of the company's performance However, the question is, to what extent will the company's management of short-term assets and short-term liabilities affect its profitability?
On the other hand, the mission of every business-oriented company is to maximize shareholder wealth through stock price appreciation This can be achieved through profit maximization through effective management of the company's working capital so that they maintain a competitive advantage, maximize operational efficiency, improve revenue and increase profitability, in order to ensure the sustainable growth of the company in today's competitive global economy
Meanwhile, the global economy has benefited greatly from emerging economies, whose gross domestic productgrowth indicators are substantially greater than in other regions of the world Moreover, Vietnam economy is very promising, having grown recently at a very favorable pace and becoming more and more appealing to international investment because of its diverse open economy According to Al-Najjar (2013), these emerging markets make up a sizeable portion of the global economy and are capable of catching up with the sales of developed economies at a lower cost and risk, so investors are urged to make investments in these markets, which include Vietnam, Indonesia, Taiwan (China), India, There must be a constructive role for Vietnam real estate sector in that development trend Vietnam real estate industry plays an important role in the national economy growth and is one of the 20 tier-1 economic sectors, ranking 9th in terms of the value scale
The Vietnam Real Estate Association (2022) recently released a study showing that the contribution of the Real Estate market is significant at about 14% to GDP in the period of 2019-2021 and it is forecast that this proportion will increase to 20% until
2030 The real estate market is capable of spreading to over 40 other important sectors of the economy and becoming a bridge for other markets, contributing to the synchronous development of all types of markets, especially related industries such as construction, finance-banking, processing industry, tourism, accommodation - catering, Contrary to 2021-2022, real estate stocks have had a sublime year with the general increase of the stock market, real estate stocks have contributed greatly to the strong growth momentum of the VN-Index, 2022-2023 is a “dark year” with Real estate businesses in Vietnam, it is heavily affected by the pressure of rising interest rates and tightening credit making businesses struggle in how to maintain cash flow to continue operating, how does the business have enough resources to pay short-term debts as they come due?
Therefore, it is very essential to clarify the role of working capital management on the profitability of real estate businesses on the Vietnam stock market Nevertheless, there is little empirical research on this subject, particularly when focusing on a specific industry Instead of choosing a generic study using data from all industries, the author will be able to provide research results with unique industry features, which will have greater practical worth As a result, the author decides to analyze the real estate sector with the topic “The impact of working capital management on the profitability of real estate enterprises listed on the Vietnam stock exchange” This research was conducted to gain insight into the correlation between
WCM and the profitability of Vietnamese real estate enterprises, contributing provide concrete evidence to the success of the working capital management for Vietnamese firms.
Research objective
Overall objectives
The research assesses the impact of working capital management on the profitability of listed real estate firms in the Vietnam stock market and provides
4 recommendations to real estate businesses in the management of working capital and improve the profitability of enterprises, and at the same time make recommendations to stakeholders.
Specific research tasks
(i) Systematizing the fundamentals of working capital management and profitability, and at the same time clarifying the influence of working capital management and profitability of the business
(ii) Analyzing and evaluating the current situation of working capital management to the profitability of real estate enterprises on the Vietnamese stock market
(iii) Building a number of econometric models to investigate and evaluate how working capital management affects the profitability of the firm
(iv) Making recommendations to real estate businesses and stakeholders in the management of working capital and improve the profitability of enterprises.
Research questions
Question 1: What is the status of working capital management and profitability of real estate businesses in Vietnam?
Question 2: Does a significant relationship exist between working capital management and the profitability of listed real estate firms in Vietnam?
Question 3: Find out what aspects of working capital management have an impact on how profitable real estate companies are on the Vietnamese stock market
Question 4: What are appropriate recommendations provided for managing working capital, enhancing corporate profitability, and at the same time making recommendations to stakeholders in the real estate industry?
Object and scope of research
Research object: The study focuses on working capital and the impact of working capital management on the profitability of enterprises
Scope of space: Real estate businesses listed on the Vietnamese stock exchange Duration: 2013 through 2022, a ten-year term
Research framework
In addition to the Introduction and Conclusion, the study is structured into five chapters as follows:
Chapter 3: Assessment of the impact of working capital management of real estate enterprises listed on the Vietnam stock market
New findings
Up to now, there has not been a single journal or scientific study in Vietnam that specifically shows the impact of working capital management on the profitability of Vietnamese real estate companies listed on 3 stock exchanges such as HNX, HOSE, and UPCOM Therefore, based on preliminary content from previous studies, my research has the following new contributions to the topic:
First, the finding of this research provides empirical proof of the Vietnamese real estate market, which has greater practical value for firms in the sector than a generic analysis using data from all industries This is also the article's new finding in comparison to earlier research
Second, the study analyzed real estate companies listed on all three stock exchanges, namely HNX, HOSE, and UPCOM over a fairly long period of 10 years in the period 2013-2022 This will give the most general analysis results without being one-sided about Vietnamese real estate businesses
Third, the author has researched and expanded the explanatory variables for the relationship between working capital management and the profitability of enterprises to give a comprehensive and accurate research result Compared with previous studies, they are only focused on 3 dependent variables NDI, NDP, and NDR affect ROA
Fourth, the study makes recommendations in accordance with the quantitative and qualitative results The recommendations are made towards the goal of solving problems related to working capital management to promote the profits of the business, and at the same time, provide suitable roadmaps for ministries, central agencies, and sectors to closely follow to promote Vietnam's real estate market
LITERATURE REVIEW
Literature review about the impact of working capital management on the
1.1.1 The theoretical review of working capital
1.1.1.1 The concept of working capital
Beginning in the first decade of the 20th century, the phrase "working capital" was first used in the context of corporate finance Ever since Adam Smith made a clear distinction between fixed capital and working capital more than 300 years ago, economists have recognized the important role working capital plays in a company Working capital is a very common concept in corporate finance theory, and it is mentioned in Smith's book The Wealth of Nations (1776) The concept of working capital was first evolved by Karl Marx in 1914, though in a somewhat different form, and the term he used was “variable capital” It is not a new one, but very important topic in business economics Its basic importance can be inferred from the following, nearly one hundred-year-old quotation from Lough (1917): “Sufficient Working Capital must be provided to take care of the normal process of purchasing raw materials and supplies, turning out finished products, selling the products, and waiting for payments to be made If the original estimates of working capital are insufficient, some emergency measures must be resorted to, or the business will come to a dead stop”
Research by Brealey et al (2011) has shown that “Working capital” is the general term for the items in the short-term balance sheet, which are attributed to current assets on the asset side and current liabilities on the liabilities side of the balance sheet He stated as follows: “Current assets include all those assets that are not classified as long-term assets and are therefore expected to be recognized within one year (or over the course of the normal business cycle) back into a liquid fund” Therefore, the key items representing the current assets of working capital include inventory, trade receivables, cash, and cash equivalents Current liabilities are defined as items that are settled within one year or within a business cycle These accounts mainly include short-term financial liabilities, short-term provisions, and other short- term liabilities However, working capital does not refer to a general term as short-
8 term operational asset and liability position, but “allows the liquidity ratio to provide information on the short-term financing behavior of a company”
Besides, the overwhelming number of authors understand working capital as the difference between current assets and short-term liabilities This is based on the understanding that both active and passive positions of a short-term nature influence company's liquidity In terms of liquidity, this difference is of great importance in the context of balance sheet analysis since it allows a statement about the liquidity status of a company as a key ratio This ratio is often referred to more precisely as Net Working Capital, to highlight the surplus of current assets via short-term liabilities A positive Working Capital means that part of the current assets is financed on a long- term basis, while a negative Working Capital indicates a short-term financing of long- term or fixed assets (Spremann, 1996) Working capital is therefore an absolute monetary amount
As for the concept of working capital used in the accounting and finance sector, there are often different definitions, both theoretically and practically, depending on which short-term balance item is considered at the end of the year together (Schneider, 2002) Generally, working capital can be divided into two concepts: Total Working Capital and Net Working Capital Gross Working Capital refers to current assets in the balance sheet and is considered by some authors to be synonym to Working Capital Ratio In return, working capital also known as net working capital can most accurately be described as the difference between a company's current assets and its current liabilities (Meyer, 2007) In Figure 1 below, Meyer details the concept of working capital in the balance sheet:
Figure 1.1 Working Capital in Balance sheet
In addition, Arnold (2008) adds that the concept of net working capital is expressed through the mathematical equation below, if current assets exceed current liabilities, then working capital is called net current assets, on the other hand if current liabilities exceed current assets, then working capital means net current liabilities
“Working capital = Current assets – Current liabilities”
In which, two components of net working capital are current assets (assets with maturity less than one year) and current liabilities (debts with maturity less than one year) This is the most important part of a company's capital structure, and it directly affects its performance Current assets include three main components: accounts receivable, inventory, cash and cash equivalents In which, inventory is usually divided into raw materials, work-in-progress and finished goods
For a general understanding of what working capital is, we need to understand the working capital cycle described in corporate finance books The working capital cycle covers all major aspects of an entity 's business In Figure 1.2, author Arnold specifically illustrated a typical working capital turnover as follows:
Figure 1.2 A typical working capital cycle
Working capital refers to the fund that a business requires to carry out its day- to-day operations It is the amount of money that is needed to keep the production process going, from the time the raw materials are purchased to the time the finished goods are sold Working capital is constantly moving continuously through different stages in the production and business process to ensure the continuous and uninterrupted production and business process In a process of producing and consuming products and services of an enterprise, working capital always exists and changes its physical form Specifically, from the initial form of cash to the form of material such as raw materials, semi-finished products (Phase 1 - Production reserve stage), then the working capital of the enterprise from physical form from one material form to another: from raw materials or semi-finished products to produce finished products (Phase 2 – Production stage, and finally the products created by
11 enterprises are sold and collected return to its original form (Phase 3 – Consumption phase) and here, the working capital cycle ends From there, the author gives some key characteristics of working capital as follows:
(i) Short Term: Working capital is being converted in acquiring current assets which will be cash for a short period only
(ii) Circular Movement: Working capital is being converted to cash continuously which will just be turned as a working capital all over again The greater the repetition of the working capital cycle over a period, the higher the efficiency in using working capital
(iii) Permanency: Although it is just a kind of short-term capital, working capital is needed by a business forever and always because it sustains the life of the company
(iv) Fluctuation: Working still fluctuates every now and then even it is something permanent
(v) Liquidity: It is very high liquid for it can be converted as cash any time without losing anything
(vi) Less Risky: Investments in current assets such as working capital comes with less risk for it is just for investment short term
1.1.1.3 The role of working capital
Working capital plays a particularly important role, directly affecting the production and business process as well as affecting the business performance of the company Your research has clearly demonstrated that working capital is an important factor in the financial health of a business, and its role in law reflects this importance
Legally: Every time a business wants to be established the first condition is that the business must have a certain amount of capital At that time, the legal status of the new enterprise is established, and the new enterprise goes into production and business activities If capital conditions are not guaranteed as required by law, the business will be terminated Thus, capital can be considered as one of the most important bases to ensure the existence of the enterprise's legal status before the law
Economically: Working capital is a critical component of a business's financial health and plays a crucial role in its day-to-day operations It represents the difference
12 between a business's current assets and current liabilities and reflects the company's ability to meet its short-term financial obligations Here are some of the key roles that working capital plays in business:
(i) Facilitating daily operations: Working capital enables a business to meet its daily operating expenses, such as paying suppliers, employees, and other bills Without sufficient working capital, a business may struggle to pay its bills and run its operations
(ii) Managing inventory: Working capital is necessary to maintain adequate inventory levels A business needs to have enough working capital to purchase inventory and keep it in stock, offering that it can meet customer demand Furthermore, working capital's fast or sluggish rotation also shows how many supplies were wisely utilized or not, how quickly the product was produced, and how widely it was circulated
Empirical researches
Since then, there has been an interesting discussion in financial management on the connection between working capital management and corporate profitability Because it summarizes a company's liquidity situation in the course of daily business operations, prudent WCM is thought of as one of the key significant aspects in evaluating a company's financial health to guarantee its profitability As a result, numerous empirical studies were conducted to evaluate the relationship between WCM and the profitability performance of firms in various markets, which began
36 earlier and is more prevalent in Western nations The majority of studies employed the empirical analytic technique using correlation analysis and regression analysis, with data from various nations and variables that may serve as substitutes for WCM and business profitability These studies arrived at varied outcomes because they utilized different study samples and analytic factors
Chawla, Harkawat, and Kiarnar (2010) used linear regression analysis and Pearson correlation to study the relationship between WCM and the profitability of three Indian petrochemical companies between 2004 and 2009 The authors demonstrate that there is a significant inverse relationship between firm profitability and WCM and its components, that is, the receivables period, inventory turnover, and debt settlement period In addition, there exists a statistically significant inverse relationship between profitability and corporate liquidity
Moreover, Mawutor, John Kwaku Mensah's (2015) research has demonstrated that working capital management factors (such as average collection period, average payment period, inventory turnover days, and cycle time) can be utilized to account for the return on assets for manufacturing enterprises in Ghana According to the study's findings, businesses with lower gross profits may delay paying their bills longer in order to take advantage of the credit term given by their suppliers, even if this is associated with an increase in the accounts payable period Because the average collection period is negatively correlated with a company's profitability, companies with lower profits are more likely to try to minimize their accounts receivable in an effort to lessen cash differentials across the cash conversion They supplied a way for managers to produce profits for their businesses by appropriately managing the cash conversion cycle and maintaining each component (accounts receivable, accounts payable, inventory) in balance Furthermore, the positive association between inventory turnover days and profitability implies that a decline in sales as a consequence of inventory mismanagement will result in the tying up of extra capital at the expense of lucrative activities
In contrast to the earlier research, Shah, Mumtaz Hussain, and Khan, Fiaz (2018)'s investigation focused on eight firms in the food and home care goods industries that were listed on the Pakistani stock exchange between 2010 and 2016
They came to the conclusion that there's no significant correlation between inventory turnover and sales growth and company profitability (ROA) Although the fact that this association is not significant, this conclusion is consistent with Olufsayo's research (2011), and it may be a good sign that better sales result in greater profits and lower inventory This is concerning because businesses may insulate themselves against future price changes by building up inventory, which keeps production and operations going smoothly Moreover, they pointed out that the food industry needs highly liquid assets as it is a critical component of their business, therefore, the positive relationship of current assets with suitable profitability with the fact that companies are safer with high liquidity and are protected from possible bankruptcy risks
In another aspect, the research by Adeel Mumtaz et al (2013) has also demonstrated the value of WCM in boosting the profitability of 22 chemical companies listed on the Karachi stock exchange The number of days receivable, the number of days inventory, the size, leverage, inventories, and equity were the variables utilized in this study to quantify WCM Sales and GDP were used as the control variables The return on assets is the dependent variable utilized in this study to assess company performance In this study, the author discovered that NDR (number of days' receivables) and ROA had an inverse connection; as NDR grew, ROA declined; conversely, as NDR decreased, ROA increased A correlation exists between ROA and NDI (number of days inventories); as inventories rise, ROA rises, and as NDI falls, ROA falls Also, he discovered that the size of the corporation has a positive association with its profitability; the bigger the assets are (above 60% of current assets), the more profitable they are, thereby increasing the value of the business If the size of the company increases or decreases, the profitability increases or decreases accordingly
Thuraisingam (2013) probed the impact of WCM on the profitability of 47 companies listed on the Colombo stock exchange from 2008-2011 The author shares the same opinion as Zubair and Muhammad (2013), they found a positive association between working capital measures and a reverse relationship between cash conversion cycle, days receivable and the firm's profitability
Besides, Raheman and Nasr (2007) conducted an analysis of 18 publicly traded food firms to look at the links between WCM and profitability from 2006 to 2010 The majority of Pakistani businesses invest a lot of money in working capital, thus it stands to reason that how that capital is handled would have a big influence on how profitable those businesses are The authors discovered a substantial inverse link between inventory turnover in days, average payable period, and cycle cash conversion These findings imply that managers might increase value for shareholders by keeping inventory and days receivable to a minimum The idea that businesses with lesser earnings may delay paying their invoices longer is consistent with the negative correlation between accounts payable and profitability Moreover, Usama (2012) expanded on Raheman and Nasr's study, and the regression analysis demonstrated that WCM had a considerable favorable impact on the firm's liquidity and profitability in addition to Profitability is favorably impacted by the two control variables, company size and the ratio of financial assets to total assets, whereas it is adversely impacted by ACP
Also, the research of Ajanthan Alagathurai (2013) has shown that effective working capital management helps three industrial sectors—food and beverage, chemicals, and pharmaceuticals—create corporate value from 2007 to 2011 He comes to the conclusion that WCM affects the corporate profitability of businesses and that managers can add value for the company's shareholders by lowering receivables and inventories while raising payables Managers should balance working capital to have the greatest impact on business profitability Also, he advised industrial firms to shorten the cash conversion cycle, which will boost productivity Because the longer the cash conversion cycle, the more the company needs to be financed from outside the company It increases costs and reduces the value of the company
Understanding the importance of working capital management to the profitability of enterprises, Huynh Phuong Dong (2010) studied the importance of this relationship of 190 firms on the Vietnamese stock market from 2006-2008 She shares the same view as Shin and Soenen (1998), Deloof (2003), Raheman and Nars
(2007) and who found a strong negative relationship between measures of WCM including the number of days of accounts receivable, days of inventory, and the cash conversion cycle to a company's profitability, and there exists a positive relationship between days accounts payable and profitability The negative relationship between corporate profitability as measured by gross profitability from operating activities and the cash conversion cycle used as a measure of WCM efficiency shows that the longer the cash conversion period, the smaller the profitability This study suggests that managers can create value for their shareholders by reducing the cash conversion cycle to a reasonable range
Thoa T.K Tu And Uyen T.U Nguyen (2014) extended the previous study by Anh Phuong Dong (2010), the study of 208 companies listed on both the Ho Chi Minh City and Hanoi exchange for the period from 2006 to 2012 She demonstrates that there is a significant negative relationship between the cash conversion cycle, receivable period, inventory period and payables period, and gross profit from operations business This means that management can improve a company's profitability by shortening the collection period, inventory period, or cash conversion cycle to an optimal level In addition, she also discovered something quite interesting in her research model, that different economic sectors may have different requirements for working capital, and have different working capital strategies Because they have different operating cycles, and different policies on trade credit, or inventory investment (Weintraub & Visscher (1998), Filbeck & Krueger (2005)), this is evidenced by both GLS and FEM methods with dummy variables
In her research paper, Tran Tu Uyen (2018) examined the effects of working capital on the financial performance of 56 food sector businesses listed on the Vietnam stock market between 2015 and 2017 in his research paper The findings indicate a negative correlation between ROA and WCM factors such as the number of days of inventory, payable collections period, cash conversion cycle, and receivable collections period
According to Duong Thi Hong Van and Tran Phuong Nga's (2018) research, which used construction firms in Vietnam between the years of 2012 and 2016 as its denominators, the profitability of these businesses is significantly impacted by issues
DATA AND METHODOLOGY
Data
The data used in the study is secondary data and is obtained from the FiinPro Platform According to Nguyen Ngoc Vu (2010), the drawbacks of the OLS approach were eliminated by using a study sample that spans three years or longer As a result, the author uses research data for a ten-year period starting on January 1, 2013, and ending on December 31, 2022
For my research, I choose total companies on the Vietnam stock exchange To make my research have greater practical worth, which is suitable with unique industry features, will I choose companies from the real estate sector I concentrate only on listed companies because of the reliability and accuracy of data provided by them in their annual reports Companies listed on the stock exchange want to create value for shareholders so, they are expected to present the true and clear picture of their income,
43 expenses, assets, and liabilities, the accuracy of these accounts can affect the significance of the result of the study Furthermore, for listed companies, there is a requirement to conduct external audits which ensure the precision of financial statements
On the other hand, non-listed firms used different ploys to avoid taxes and get new loans Hiding profit and liability and showing more book value of assets is common practice The inclusion of such companies has a big risk for the purpose of research because results will not show the true picture of the actual practice of working capital and its relationship with profitability
As a result, I select 132 real estate companies on the Vietnam stock exchange to make our research more comprehensive but unfortunately, the financial statements for some companies were missing over the period of study Therefore, I exclude such companies from my original sample and left with the final sample of 49 companies and with 490 total observations (detailed in the appendix).
Methodology
Those who adhere to this philosophy work with the observable world in an autonomous manner; neither themselves nor the topic are influenced by the other It focuses on a procedure that is well-structured and will result in statistical analysis (Saunders & Lewis, 2000)
The practitioners of this philosophy to investigate the situation's reality, or, to put it another way, they want to learn the truth that lies behind another reality Hence, to comprehend reality, they carefully analyze the circumstances (Saunders & Lewis,
Among the two philosophies of research positivism really support my purpose of research since I want to focus on visible reality (the relationship between working capital policy and profitability), and I do not investigate the reality that lies beneath the reality without supporting data I independently gather the data (without outside
44 influence) and use statistical methods to examine it In this case, neither the topic nor
I will have any effect over the other
The theory testing technique is another name for it With this approach, researchers first develop a hypothesis before using that hypothesis to develop a study plan to test it It is considered a casual technique to define a relationship between two variables Regardless of the results of the current research, this strategy gives researchers the freedom to do their own research and present their own findings (Saunders & Lewis, 2000) This is true even if those findings clash with those of previous studies because there are differences in the time of the observed samples and the space of various studies
It is also known as theory building approach The deductive method is opposed by this With this process, researchers collect data initially and then develop a theory by analyzing it To put it another way, it explains the reasons for the occurrence rather than detailing it in detail (Saunders & Lewis, 2000)
I apply the deductive approach in my study, developing the hypothesis first and then analyzing the data to test it Also, the deductive approach is employed to illustrate the connection between two variables Because I wish to look into the connection between variables, this thing also inspired me to utilize this approach
The research used methods of qualitative analysis to process the information and data gathered: (i) Statistical analysis method, synthesizing previous studies to clarify working capital management and profitability of the enterprise; (ii) Comparative method (including chain comparison) to analyze secondary statistical data to assess the status of working capital management and profitability of the enterprise Then, it points out the inadequacies in the current circumstance and the
45 relationship between WCM and profitability model of the Vietnamese real estate industry, as a foundation for remedies
The quantitative approach entails collecting quantitative data or standardized data for analysis Statistical methods like regression and correlation are used to do the analysis Researchers use this approach when they wish to describe the connection between two variables (Saunders & Lewis, 2000)
Both qualitative and quantitative methodologies will be used during this study since the data will be obtained in the form of numerical digits and I will be employing statistical tools for analysis In order to comprehend the relationship between the elements of working capital management and a firm's profitability, I will carry out a regression analysis using Stata software
The link between working capital policy and profitability of listed real estate corporations is an essential topic that has not attracted much study attention So, the research has been designed in an own way that it will not only contribute to the existing knowledge, but it will also meet the requirement and purpose of the study It will be a longitudinal study and will follow explanatory research strategy as I want to find out the relationship between working capital policy and profitability over a period of ten years (2013-2022) I use the secondary data, which is quantitative in nature, of the selected companies for the statistical analysis in the Stata, which is consistent with our research strategy
According to reliability, even if the research is conducted by a different researcher on a different occasion, the outcome will remain the same Also, it shouldn't be topic biased, observer biased, or include any subject errors
Validity refers to the realism of a study's findings; it guarantees that a study explaining the link between two variables will demonstrate that relationship exactly as it does, and that no fraudulent data was used to inflate results or make them appear more appealing This data belongs to real world and the values of different accounts (Assets, sale, debt, account receivable, inventory…) in audited financial reports of previous years can’t be fictitious and can’t be changed So, the relationship that I will find in this research will be real.
Research process
The author's research process is as follows:
Step 1: Synthesizing and collecting research data, and hypotheses of previous studies to build the model for this research paper
The process of synthesizing and acquiring data is crucial in determining the focus of the study and providing a broad overview of the author's area of interest This enables me to find out the benefits and drawbacks of past studies and then address them in my own study Between January 1, 2013, and December 31, 2022, the author gathered significant critical metrics for 49 real estate businesses
This study helps the author thoroughly explain each variable in the research model and gives a brief overview of the characteristics linked to important financial indicators connected to working capital management and firm profitability
Step 3: Examining the flaws of the model
The examination of correlation follows the analysis of descriptive statistics in the thesis Specifically, the article estimates the Variance Inflation Factor (VIF) of each independent variable in the research model According to Studenmund (1997), a research model is likely to be multicollinear if the value of any variable VIF coefficient is more than 5 A Wooldridge test may be used to check for autocorrelation fault in the model and a White test can be used to see whether the model is
47 heteroscedastic Adjustments should be done if any of the three aforementioned phenomena show up in the model
After analyzing the correlation coefficient matrix and the model tests after examination of the model tests and the correlation coefficient matrix Using Stata 16 software, the author runs a linear regression model Finally, the author thoroughly examines the study findings and contrasts them with the research assumptions outlined above in order to provide pertinent advice.
Research model
2.4.1 Overview of the research model affecting working capital management's profitability
Ronald Ebenezer Essel, Joyce Akua Brobbey (2021) examined the influence of the business cycle on working capital management strategies based on evidence from of an emerging economy Ghana Four regression models were run to examine the impact of working capital management on profitability, which was modeled using the following regression equations:
ROA = f(AR, INV, AP, CCC, LEV, FFAR, GROW, CR, SIZE, μ, γ, ε)
ROA: Return on Assets GROW: The sale growth
AR: Average collection period CR: Current ratio
INV: Inventory conversion period FFAR: The fixed financial assets ratio AP: Average payment period LEV: Leverage ratio
CCC: Cash conversion cycle 𝛾: The time dummy
SIZE: Natural Logarithm of total assets 𝜇: The unobservable heterogeneity
By exploring the interrelation between working capital investment and ROA (profitability ratio), they found that firms may enhance their profitability by
48 optimizing their cash operating cycle, improving receivables collection, improving procedures for collecting bad debts, decreasing inventory investments, and extensively using trade credit from suppliers These findings highlight the importance of working capital management as a potential source of efficiency improvement and persistent competitive advantage
To evaluate the effect of working capital industry management on the profitability of 56 food firms in Vietnam stock exchange between 2015 and 2017, Tran Tu Uyen (2018) utilized a linear regression model using the dependent variable ROA
ROA = f(AR, INV, AP, CCC, LEV, CR, SIZE)
ROA: Return on Assets SIZE: Natural Logarithm of total assets AR: Average collection period CR: Current ratio
INV: Inventory conversion period CCC: Cash conversion cycle
AP: Average payment period LEV: Leverage ratio
The findings demonstrate that the ROA ratio and working capital management factors including inventory conversion time, average collection period, average payment period, and cash conversion cycle all have a negative association Furthermore, controlling factors like company size have a beneficial effect on corporate profits while financial leverage and current ratio have a negative influence on ROA
In addition, Ajanthan Alagathurai (2014) has extended the model to study the relationship between working capital management and profitability of the main groups of industries in Sri Lanka in the period 2007-2011 as manufacturing enterprises, Food and Tobacco Beverages, Chemicals and Pharmaceuticals He tested this relationship on 3 main models with dependent variables ROA, ROE and NPM His results are similar to the previous research hypothesis that there is a negative relationship between the variable CCC and ROA, ROE and NPM
ROA = f(CCC, AI, AD, AC, CR, QR, ICR) ROE = f(CCC, AI, AD, AC, CR, QR, ICR) NPM = f(CCC, AI, AD, AC, CR, QR, ICR)
AP: Average payment period CCC: Cash conversion cycle AR: Average collection period CR: Current ratio
AD: Inventory conversion period QR: Quick ratio
ROA: Return on Assets ICR: Interest coverage ratio
Abrahim Mansoori, Joriah Muhammad (2012) have concluded that the components of working capital management (CCC, RCP, ICP, PDP) have a negative impact on the profitable of firms These results demonstrate that firm's profitability is increased by decreasing in receivable conversion period and inventory conversion period The negative relationship between payable conversion period and profitable might stem from the fact that more lengthening of payable deferral period would damage firm's reputation, and consequently decrease profitability In addition, the GDP control variable has a positive impact on the profitable of enterprises, the good economic environment will promote revenue growth of enterprises, thereby improving the ROA ratio of enterprises The research model carried out in the period 2004-2011 is as follows:
ROA = f(CCC, RCP, ICP, PDP, SIZE, LEV, GROWTH, GDP)
PDP: Average payment period CCC: Cash conversion cycle RCP: Average collection period GROW: The sale growth
ICP: Inventory conversion period LEV: Leverage ratio
2.4.2 Research model of the impact of working capital management on the profitability of the enterprise
The author created a model that visualizes the relationship between WCM and the business's profitability based on the extant related literature reviewed above on WCM and the profitability of the company as follows:
To analyze and evaluate the influence of working capital management on the profitability of real estate enterprises on the Vietnamese stock market, the author utilizes a straightforward linear regression model, combining with and further adjusting specific variables based on previous research models to fit the economic environment in Vietnam The author used the following regression equations with two different dependent variables (GOP and ROA):
The first set of models regressed ROA (1) for firm (i) at time (t) on WCM constituents as well as the associated control variables included in the models as follows:
The second set of models regressed ROE (2) for firm (i) at time (t) on WCM variables as well as the associated control variables as follows:
𝛽 0 : Intercept coefficient 𝜀: The stochastic disturbance term
ROE: Return on Equity t: The time dimensions
ROA: Return on Assets SG: The sale growth
NDI: Number of days inventories CR: Current ratio
NDR: Number of days accounts receivable FFAR: The fixed financial assets ratio NDP: Number of days accounts payable
SIZE: Natural Logarithm of total assets
LEV: Leverage ratio CCC: Cash conversion cycle GDP: The GDP growth
The use of 04 models corresponding to 1 group of models above (the total of 8 models) is based on the studies of Ronald Ebenezer Essel, Joyce Akua Brobbey
(2021), Tran Tu Uyen (2018), Ajanthan Alagathurai (2014), and Abrahim Mansoori,
Joriah Muhammad (2012) This will help me to clearly assess the impact of each independent variable on the dependent variable In addition, the division into 04 models also aims to avoid serious multicollinearity in the estimation model, because
𝐶𝐶𝐶 𝑖𝑡 = 𝑁𝐷𝐼 𝑖𝑡 + 𝑁𝐷𝑅 𝑖𝑡 − 𝑁𝐷𝑃 𝑖𝑡 , so if I combine one estimation model, the possibility of multicollinearity will occur seriously is very high
This is a very important ratio for firms deciding whether to open a new project
Because of this, a firm is going to open a project they expect to earn a profit on it, return on asset is the profit they would receive Therefore, the return on assets is significant and provides a standard for changing how efficiently financial management employs the average amount which is invested in the firm's assets ROA calculates the profitability, and I used this variable as the dependent variable Choiu et al (2006) and Wu (2001) showed that a firm’s return also negative and positive affects measures of working capital management Because companies with good performance can get outside capital more easily, they can invest in other large profitable investments (Chiou et al., 2006)
The dependent variable ROE must be added to the ROA variable to thoroughly assess how working capital management affects the profitability of the company
Ajanthan Alagathurai (2014) and Nguyen Duc Quang (2018) had clearly shown the importance of ROE in their research model Since all productive business operations of the firm are supposed to enhance the quality and efficiency of use of equity,
54 consequently increasing the value of the owner, ROE is one of the crucial financial indicators of a business to analyze the profitability of a company
Many factors have an impact on working capital management; hence, it is important to understand and analyze each factor that affects working capital management:
The number of days inventories (NDI) used as a proxy for the inventory policy is an independent variable It is calculated as (average inventories/cost of goods sold) x 365 It may be viewed as just how long it requires for a firm to turn its inventory of its into cash If NDI is high, the company's cash is tied up in inventory for a longer period, meaning it cannot be deployed for other purposes It may also be associated with overstocking, leading to higher than necessary storage costs and a high level of obsolete stock that may never be sold, which can decrease the profitability of the firm
Hypothesis 1: There is a negative relationship between the number days of inventory (NDI) and the profitability ratio (ROA, ROE)
Number of days accounts receivable
The time between the sale and the receipt of payment is known as trade credit period or days account receivables (NDR) It is believed that longer period of collection of account receivables or longer credit period offered by the company results into higher sales, and more sales bring more profit in the business So, there could exist a relationship between the number of days account receivables and profitability of the firm, which is found in research of Kenyan of David M Mathuva
Hypothesis 2: There is a negative relationship between the number of accounts receivable (NDR) and the profitability ratio (ROA, ROE)
Number of days accounts payable
Inversely from NDR, the number of days accounts payable (NDP) of the company concerns its policies on trade credit with respect to the outstanding debt Generally, any firm has a high DPO is advantageous, because it means that the
55 company has extra cash on hand that could be used for short-term investments Thuraisingam (2013), Raheman and Nasr (2007) proved it is an important indicator in effective working capital management of the enterprise and they are a positive relationship
Hypothesis 3: There is a positive relationship between the number days of account payable (NDP) and the profitability ratio (ROA, ROE)
ASSESSMENT OF THE IMPACT OF WORKING CAPITAL
The situation in Vietnam
3.1.1 Overview of Vietnam real estate market
3.1.1.1 Segments of Vietnam's real estate industry
Vietnam's real estate market can be divided into the following categories, according to research by the Vietnam Real Estate Association: residential real estate (social housing, commercial housing), industrial real estate (land belonging to industrial zones, craft villages, and industrial production facilities), tourism and resort real estate, service real estate for service activities (such as houses for rent, offices for rent), agricultural real estate, and real estate land (land area for construction of the cemetery, religious works)
The stock market also categorizes companies in the real estate sector into third- level industry groupings, such as real estate development, real estate leasing, real estate-related operations, and real estate brokerage
3.1.1.2 The current situation of the Vietnamese real estate market from 2013 to
Vietnam's real estate market has seen ups and downs, several variations in economic crisis, and epidemics throughout the past three decades of growth Going back to the period 2008-2012, the real estate market hit a bottom that was as deep as
"a compressed spring," resulting in a dramatic decline in the industry's growth rate of more than 3%, reaching -1.18% in 2012, the lowest growth rate in 30 years (Figure 3.1) Because the real estate market in 2012 was almost "static" with a very large inventory (backlog total capital of VND 52,542 billion) and very huge bad debts (about VND 28,000 billion) leading to severe consequences
Figure 3.1 The Vietnam's real estate industry growth in 2012-2022
In the period 2013-2016, a period of market recovery and steady growth, the State Bank of Vietnam (SBV) published Circular 11/2013/TT-NHNN in May 2013 to implement Government Resolution 02/NQ-CP governing loans to encourage housing (VND 30,000 billion) The applicable interest rate in 2013 is 6% (and will be 5% in
2016) to help solve difficulties The preferential policy has given Vietnam's real estate industry a significant boost The real estate market's growth rate increased noticeably in 2016 from 2.17% to 4% Since 2013, the number of real estate transactions has considerably expanded, rising from 5,900 units to 43,500 units in 2016, or a similar absorption rate of more than 50%, an increase of over five times within only four years (Figure 3.2) In addition, the average price in significant markets like Hanoi and
Ho Chi Minh City also increased, with good projects seeing increases of between 5 and 10% YoY There were concerns concerning imbalance, supply-demand mismatches, and credit phase mismatches in 2016, even if the real estate market with a strong growth rate was maintained The supply of mid-end commercial housing was scarce on the market, only amounting to 25–30% (even though the market requires more than 70%), whereas the high-end home sector and high-end real estate line had seen a significant increase
Figure 3.2 Supply and transactions of commercial and residential real estate in the period 2013-2022
The real estate market in the period 2017-2019 was a period of sublimation, almost comprehensive, and uniform development in most segments According to statistics from the Business Registration Administration in 2017, the whole country recorded 4,500 real estate enterprises and 155,300 newly established construction enterprises In 2017, the scale of enterprise capital during this period also tripled, from VND 20 billion/enterprise to VND 68 billion/enterprise This underscores the industry's new record growth with an absorption rate of over 58% which equates to over 67,000 units transacted during the year A remarkable phenomenon in the national real estate market during the year was the explosive development of the Condotel real estate segment, the product supply amounted to 22,837 units in the two major provinces of Khanh Hoa and Da Nang Which, 77.7% of total Condotel products had the asking price in the high-end real estate segment from 35 million to
The real estate industry contributed more than 4.5% of GDP in 2019, increasing by 4.61% over the same period in 2018 and surpassing the top of 4.33% in 2018, which was the largest rise since almost 15 years ago (Figure 3.1) Despite this, 2019
64 was seen as a difficult year for Vietnam's real estate market due to a decline in both supply and transaction volume In the housing sector, supply was just 62% lower in
2019 than it was in 2018, and the number of transactions involving apartments similarly fell to only 65% of what it was in 2018 This is because many projects encountered legal issues, as well as challenges when SBV tightened lending capital for real estate
After the first 3 quarters of 2020 were heavily affected by the COVID-19 pandemic, Vietnam's real estate market has gradually recovered and opened many rays of light for the market soon Several guidelines and regulations have been issued to promote the recovery and development of the real estate market, such as regulations on the process of handing over land to winning investors (February 2020), regulations on extending the deadline for submission of Tax for real estate businesses (March 2020), and Decree 164/NQ-CP on legal removal for real estate projects (November 2020)
General data reported by the Vietnam Real Estate Association, especially in the first quarter of 2021, the situation of "land fever" occurred from the North to the South, in all regions of the country, with an average increase from 30 to 100% The continuous increase in real estate prices despite the Covid-19 epidemic came from 3 factors: (i) Supply shortage led the market (only more than 52,000 units, down more than 45% YoY), (ii) Cash flow into the real estate industry from Q1/2021, (iii) Expectations on the Government's market stimulus package
Never has Vietnam's stock market witnessed such remarkable growth as in
2021 Low-interest rate environment, the need to find new investment channels during the period of social distancing due to the Covid-19 epidemic along with the attractiveness of the high rate of return Especially, VN-Index surpassed 1,500 points for the first time in November, setting the highest record ever Besides the stocks of CEO, DIG, QCG, HQC, PTL, SCR, ITA, etc., which increased rapidly, the market also witnessed many stocks at high levels, such as VHM, NVL, SCR, NLG, DXG, KDH… had a strong breakout
Vietnam's economy passed 2022 with clear signs of recovery after the sudden devastation caused by the Covid-19 epidemic GDP in 2022 grew more than 8%, the highest growth rate in more than a decade, at the same time the growth rate of real estate industry increased from -0.34% to 5.90% in 2022 (Figure 3.1) In the context of the economy mentioned above, Vietnam's real estate market in 2022 evolved with two different "colors" "booming at the beginning of the year, quiet at the end of the year." In 2022, the supply of residential real estate trade was very scarce (total market supply is about 48,500 products, equivalent to 90% of total products offered for sale in 2021), and very few new projects are approved in the year
From the end of May 2022, rising interest rates, economic instability, a series of tightening policies on credit, corporate bonds, and leaders of some businesses entangled in labor have made the general sentiment in the market afraid, all transactions delayed, real estate projects in progress had to be halted By the end of the year, the overall consumption rate of the whole market reached about 39%, equivalent to 19,000 transactions, equal to 69% of the transaction volume in 2021 and only 17% compared to 2018's transaction volume (Figure 3.2), in which the absorption rate of tourism and resort real estate for the whole year is only 28%
RESEARCH RESULT
Sample description
Table 4.1 Descriptive statistics of the variables in the model
A total of 490 observations in the research data were collected from 49 enterprises in the real estate industry listed in the period from 2013 to 2022 on all 3 exchanges, namely HNX, HOSE, and UPCOM Table 4.1 presents descriptive statistics of 490 observations including 2 dependent variable, 4 independent variables and 6 control variables
First, the statistical summary of the data for the ROA variable reveals that the statistical sample's mean return on total assets is 2.90% In comparison to other businesses and sectors, the ROA level is thought to be low The average ROA of all businesses listed on the Ho Chi Minh Stock Exchange is roughly 9.69%, according to a study by Pham Quoc Viet and Pham Tran Quang Phuc (2020) As a result, when comparing the ROA of the two studies, we can find that the sample's real estate companies had substantially lower ROA than the market In addition, there is a significant variation in the range of ROA's maximum and minimum values, with the highest value of the variable reaching a value of around 28.45% and the lowest one reaching -164.6%, with the variable's standard deviation being about 8.35% This demonstrates differences and disparities in the financial performance of real estate
78 enterprises The real estate industry, which is one of those with an intense rivalry, may be used to show why there is a difference Large businesses in the industry benefit greatly from favorable sales circumstances and effective cost control and often have better average ROA figures than small and losing businesses However, while examining this problem, it is challenging to draw precise conclusions on the ROA effect factor using the conventional Dupont model As a result, more working capital management elements that affect ROA must be considered by businesses using ROA to promote product consumption Meanwhile, the ROE indicator shows the mean value of about 8.21%, which is relatively high compared to other industry groups With such a high ROE, it is partly reflected in the standard deviation of 9.22% with the minimum value being -7.22% and the maximum value being 28.62%
Second, the independent variable NDI recorded the largest and smallest turnover period of 8,711 days and 14 days, respectively The average inventory turnover is approximately 1,521 days, which is much larger than in other industries With the characteristics of the real estate industry, the inventory turnover period is often larger than that of other manufacturing enterprises Because real estate businesses often must invest a large amount of money and time in project development, approval, construction, handover, and sale In this process, the inventory of real estate businesses is often very large and must wait until the project is completed and sold to collect money Therefore, the inventory turnover period of real estate enterprises is usually longer than that of other manufacturing enterprises
In addition, due to the impact in the period of 2021-2022, the inventory of most enterprises increased sharply such as VIC, DRH, NDN, PDR, PXL, VRC, VPH… According to statistics from the model, on average, real estate enterprises can turn around their inventory to bring consumption to the market for 3-4 years
Real estate products such as apartments, townhouses, and villas…have great value, so the sales period of real estate enterprises is often longer than that of other products This leads to a larger number of days receivables of real estate businesses Moreover, the real estate industry has a more complicated legal situation than other industries, especially the settlement of these legal procedures is also one of the factors that lead to the number of days of receivables of the real estate business being larger
As a result, NDR with a mean value of 255 days, the maximum and minimum values were recorded at 1,526 days and 12 days, respectively, with a large difference This shows that each real estate business pursues its own different credit policies Businesses that apply a loosened commercial credit policy that allows customers to appropriate capital of the business to attract more customers, thereby boosting revenue However, if the debt recovery ability of the real estate business is not effective, it will lead to the business' lack of capital and affect the ability to expand
The next independent variable in the model is NDP which records an average value of 157 days, along with the largest and smallest payment periods of 929 days and 7 days, respectively The average payment period partly reflects the ability of enterprises to appropriate external capital In general, enterprises in the real estate industry have a reasonable occupancy rate A business that does well in the year and can take advantage of external capital for a long time will have abundant capital as well as save corporate income tax deductions from interest expenses Finally, the unique characteristics of the real estate industry made the average value of independent variable CCC is high, about 2,253 days when compared to other industries Three factors explain the high days of inventory, days of accounts receivable, and days of payables in the last 2 years: (i) business characteristics of the real estate industry in particular, (ii) influence from the economic crisis and legal policy makes the inventory of businesses increased sharply while the revenue showed no signs of increasing and (iii) was severely impacted by the majority of the large real estate enterprises, including VIC, VRC, DRH, KBC, and ITA
In addition, according to the statistical model, the control variables such as CR have an average statistical value of about 2.68 This proves the liquidity of short-term assets of real estate enterprises is good In addition, the variable SIZE represents the total assets of the real estate business, recording a minimum value of 26.27 and the maximum value of 30.43 The variable SG represents the revenue growth of real estate businesses with an average value of 28.08% with a large difference between the maximum value of 281.28% and the lowest value of -77.45% This represents a huge difference in the annual revenue of different real estate businesses and partially affected by the Covid-19 period
The next control variable LEV recorded the average value of the industry at 37.06%, which is a relatively low rate compared to the capital structure of real estate enterprises The reason for this difference is that most of the small real estate businesses have low leverage and gradually tended to increase slightly in the past 3 years The FFAR variable has an average value of 9.89%, the highest value is 43.86%, and the lowest value is 0.001%
Besides, the GDP growth variable has an average growth rate of 5.9% per year This shows that Vietnam's economy is on the rise The error level of the resulting variable is quite low when the SD fluctuates in the range of 1.2% High GDP growth can reflect consumer consumption trends, and that can help businesses take advantage of resources to expand revenue.
Model testing
Note: ***, ** and * denote significance at the 1%, 5%, and 10% levels, respectively
A correlation test was performed to determine whether the issue of multicollinearity exists and to establish the relationships between the outcome variables and the independent variables as well as ascertain the associations among all the explanatory variables With respect to multicollinearity, the main reason for conducting this test was to avoid a situation where two or more independent variables with high correlation would be included in a regression model Table 4.2 depicts the
81 correlation matrix with ROA and ROE as the prognostic variables against the other WCM regressors
From this table, we see that ROE has a negative relation with all explanatory variables NDP, NDR, NDI, and CCC as well as other controlling variables at high significance at α=1% and α=5% levels However, ROE has a positive correlation with
2 control variables, namely SIZE, and LEV Likewise, ROA has a negative relation with 4 explanatory variables as well as other significant variables at a high α=5% level, excluding CR This relation shows that if management can reduce inventory days, receivable days, and payable days meaning that more efficient net working capital management, they can increase the company's profit
In addition, the results of the correlation analysis between NDI and CCC are quite high (reaching 0.5994) this can be easily seen because 𝐶𝐶𝐶 𝑖𝑡 = 𝑁𝐷𝑅 𝑖𝑡 + 𝑁𝐷𝐼 𝑖𝑡 − 𝑁𝐷𝑃 𝑖𝑡 , so the correlation coefficient between these two variables is quite high, once again found that the division into 04 models is completely reasonable and avoids the serious multicollinearity between the variables in the model The above correlation analysis results are consistent with most of the previous studies in the world and in line with the author's expectations in this research period in Vietnam Besides, the value of 0.875 for the relationship between ROA and ROE does not constitute the presence of multicollinearity because they are both dependent variables
The correlation matrix for the WCM regression models reveals that all the independent variables and control variables can be included in the regression models as the correlation between them was not high, the correlation between the independent variables was all below 0.6 and is considered satisfactory (Gujarati
(2004), Jason (2017)) This indicates that multicollinearity between the variables is almost no This is further supported by the Variance Inflation Factor (VIF) values presented in Table 4.3
In conclusion, the result from analyzing of the correlation indicates that there is a negative between the cash conversion cycle, number of days accounts receivable, number of days inventories with the profitability of firms are consistent with the
82 research of Deloof (2003) and Raheman and Nasr (2007) However, in studies by Ronald Ebenezer Essel, Joyce Akua Brobbey (2021), Mumtaz Shah Hussain, Fayyaz Khan (2018), they indicated a positive relationship between number of days accounts payable and profitable Contrast, this research shows a negative relationship between number of days accounts payable and profitable This analysis suits with result of Ajanthan Alagathurai (2014)
A further diagnostic test of the suitability of the data for panel data analysis is done using the Variance Inflation Factor (VIF) analysis is presented in Table 4.3 Studenmund (1997) noted that any computed VIF greater than 5.0 shows a problem of multicollinearity In this study, the computed mean VIF value of 8 models which are lower than 2.00 and thus shows the absence of multicollinearity in the estimated model
Table 4.3 VIF test of the model
For 2 groups of regression models with dependent variables ROA and ROE (total of 8 models) selected, the author used the White test for p_value > 0.05, and the results are detailed in Tables 4.4 and 4.5 Therefore, I accept hypothesis H0: The variance between entities is constant, resulting in no heteroscedasticity in the research model
Table 4.4 White’s test results of the first set of model regressed ROA
Source: Stata 16 software Table 4.5 White’s test results of the second set of model regressed ROE
For the research model, the Wooldridge test gave p_value > 0.05 (tables 4.6 and 4.7) accepting the hypothesis H0: There is no autocorrelation phenomenon, and the model results are not autocorrelated In conclusion, the author conducts model regression and determines that the model is error-free after testing
Table 4.6 Wooldridge test results of the first set of model regressed ROA
Source: Stata 16 software Table 4.7 Wooldridge test results of the second set of model regressed ROE
Research result
Using ROA as the dependent variable, the regression results indicate that, the explanatory variables explained 57.43%, 54.90%, 57.58% and 58.32% the variance in the outcome variables for models 01, 02, 03 and 04, respectively (Table 4.8) The F-statistics demonstrate satisfactory validity of the estimated models i.e., the balanced panel regression models have a good fit
Table 4.8 Regression Results of WCM Effect on ROA as the dependent variable
The regression findings show that, for models 05, 06, 07 and 08, respectively, the explanatory factors explained 50.72%, 49.33%, 49.76% and 52.41% of the variation in ROE as the dependent variable (Table 4.9)
Table 4.9 Regression Results of WCM Effect on ROE as the dependent variable
Empirical regression results from Tables 4.8 and 4.9, reveal a significant p