Working capital management and profitability of Indonesian manufacturing firms: The moderating role of firm size

Abstract

This study examines the relationships between working capital management and profitability among IDX-listed manufacturing firms in Indonesia and tests the moderating role of Firm Size. Working capital management is assessed using the Cash Conversion Cycle (CCC) and Current Ratio (CR), while profitability is measured by Return on Assets (ROA). The study uses 75 firm-year observations from 15 manufacturing firms during 2021–2025. To account for the panel structure of the data, the study estimates a two-way fixed-effects panel regression with firm and year fixed effects and standard errors clustered at the firm level. The results show that CCC has a negative but statistically insignificant association with ROA (β = −0.046, p = 0.356), while CR has a positive but statistically insignificant association with ROA (β = 0.669, p = 0.104). Firm Size does not significantly moderate the CCC–ROA relationship (β = −0.006, p = 0.862) or the CR–ROA relationship (β = 0.154, p = 0.626). The findings indicate that the relationships between working capital measures and profitability are not statistically significant in the sampled firms after accounting for firm- and year-specific effects. The study contributes to the literature by examining working capital efficiency, liquidity, and Firm Size within a panel-data framework in Indonesian manufacturing firms.