Working Capital Management and Profitability of Banks: Evidence from the Iranian Capital Market

Abstract

The main objective of this research is to investigate the relationship between working capital management and the profitability of banks in the Iranian capital market. To achieve this objective, financial data from thirteen banks have been used in a balanced panel format over the period from 2013 to 2021. The dependent variable, profitability, includes two profitability indicators: Return on Assets (ROA) and Return on Equity (ROE). working capital management is measured using the cash ratio and Cash Conversion Cycle (CCC). In this research, hypothesis testing has been carried out using fixed-effect regressions and Generalized Method of Moments (GMM) estimations. The results indicate that there is no significant relationship between the cash ratio and profitability, while there is a positive and significant relationship between the CCC and profitability.