THE IMPACT OF PROFITABILITY AS A MEDIATOR IN THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND STOCK RETURN
Keywords:
Capital management, liquidity management, inventory management, short-term debt management, stock returnAbstract
This research paper aims to examine the impact of working capital management on stock returns, considering profitability as a mediating variable, in order to provide financial managers and stock market stakeholders with clear insights for better decision-making. These concepts are fundamental to financial institutions particularly Malaysian companies, which rely heavily on effective financial management to achieve their strategic objectives. The study employed a quantitative approach, analyzing a sample of companies listed on Bursa Malaysia over the period from 2014 to 2024. The analysis focused on the relationships between profitability (mediating variable), working capital management (independent variable), and stock returns (dependent variable). Working capital management was assessed through three dimensions: liquidity management, inventory management, and short-term debt management. Statistical analysis was conducted using SPSS and Smart PLS software. The results indicate that liquidity management has a positive impact on both profitability and stock returns. Conversely, inventory management and short-term debt management showed a negative relationship with both profitability and stock returns. A positive relationship was observed between profitability and stock returns. Furthermore, profitability was found to partially mediate the relationship between the dimensions of working capital management and stock returns. Based on these findings, it is evident that management needs to adopt sound working capital management strategies to achieve desired objectives. The originality of this study lies in the mediating role played in establishing a clear impact between capital management and stock returns.
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