THE IMPACT OF WORKING CAPITAL MANAGEMENT ON FIRM PROFITABILITY IN INDONESIA AFFECTED BY BUSINESS CYCLE IN CHINA

• Main Author: Krismon Lumbantoruan, Bill
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/41294
• Institution: Institut Teknologi Bandung

Economic cycle is an economic activity that will certainly occur as long as the country shows growth. In 2008-2009, China has a significant decrease, it was an impact of the global financial crisis. Surely after the recession phase then the economy was growing in 2010. Unfortunately, in 2011-2013, China has a decline in growth which made previous expansion smaller than the recession that year. In 2018, there was a problem of trade war between the United States and China, even though in the previous year China’s economic was stable, which was later affected by the trade war agreement between the two countries. So that it had caused a slowdown in economy China which was most likely to affect companies in Indonesia as the main trading partners. Hence, the company may need to change its decisions in managing its operations and finances. As the one of the main part in managing finance to support the company's business activities, working capital needs to be considered as a form of operational management efficiency. The efficiency of working capital can be seen from the cash conversion cycle which consists of three parts of activity, namely the inventory period, receivables period, and payables period. Effective working capital management has a harmonious relationship to the company’s profitability, but in high level of profitability also has risks. Therefore, this study aims to look at the effect of management working capital with different business cycles in China on firm profitability as a form of trade relations that is large enough affecting the company, especially in manufacturing sector. Looking at the previous research, the analysis using the regression panel and the time period needed is 2009-2018 with data annually from 40 manufacturing companies that make export sales. Profitability variables are measured from Return on Assets and Gross Operating Income also for independent variables are components of working capital, namely cash conversion cycle, number of days inventories, number of days accounts receivable, and number of days accounts payable with dummy variables as a form of economic cycle recession and expansion that affects. The method for processing data is the fixed effect and robust standard error. This model also uses variable controls to avoid data analysis deviations. From the conclusion of the analysis, it turns out that both the recession and the expansion in China do not to be worried because of the eight regression models only one independent variable has negative significant to dependent variable so that it can be concluded that this analysis cannot explain the effect of working capital on company’s profitability. This finding is aims to provide information to export companies that the economic effects of China as the biggest partner do not affect the company's operations management and firm profitability.