The impact of short-term management on the profitability of the Portuguese companies in the construction sector

Abstract

The aim of this study is to analyze the effects of working capital management on the profitability of Portuguese firms in the construction sector. For this purpose, longitudinal data were collected from the SABI database between 2008 and 2016. The research hypotheses were tested using panel data methodologies. Our results provide evidence of a negative linear relationship between the profitability and working capital management indicator, which is consistent with several previous studies. It also appears that a reduction in the average number of days of inventories and an increase in the average number days of payables leads to an increase in the profitability of construction companies. However, unlike the previous research, we find evidence of a convex relationship between the profitability and working capital management.
In addition, we also analyze the differences in the working capital management policies during the most recent financial crisis relative to the post-crisis period. In this context, firms must adjust working capital policies in line with the business cycle.