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Open AccessArticle

Moderating Effects of Firm Size and Leverage on the Working Capital Finance–Profitability Relationship: Evidence from China

1
School of Economy & Management, Harbin Institute of Technology, Harbin 150001, China
2
School of Management, Iqra University, Islamabad 44000, Pakistan
3
School of Management, Ocean University, Qingdao 266100, China
*
Author to whom correspondence should be addressed.
Sustainability 2019, 11(7), 2029; https://doi.org/10.3390/su11072029
Received: 25 February 2019 / Revised: 29 March 2019 / Accepted: 2 April 2019 / Published: 5 April 2019
We evaluated the moderating effects of firm size and leverage on the working capital finance (WCF)–profitability relationship among Chinese companies during 2000–2017. Applying the generalized method of moments (GMM) technique on panel data, we observed that firm size and leverage have strong moderating roles in the WCF–profitability relationship. We observed that small or low-leverage firms have an inverted U-shaped WCF–profitability relationship. However, this relationship is U-shaped for large or high-leverage firms. We report break-even points in these relationships that show the portion of short-term debt in working capital financing. The results reveal that the break-even point for all subgroups (small, large, low-leverage, and high-leverage firms) decreases compared to the break-even point of the full sample. This study shows how the break-even point of the WCF–profitability relationship shifts when a company expands or its leverage level changes. Managers can use this information for profit maximization. View Full-Text
Keywords: working capital finance; short-term borrowings; profitability; breakeven point; generalized method of moments; firm size; leverage working capital finance; short-term borrowings; profitability; breakeven point; generalized method of moments; firm size; leverage
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Mahmood, F.; Han, D.; Ali, N.; Mubeen, R.; Shahzad, U. Moderating Effects of Firm Size and Leverage on the Working Capital Finance–Profitability Relationship: Evidence from China. Sustainability 2019, 11, 2029.

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