Natarajan and Getachew
Greener Journal of Business and Management Studies Vol. 3 (6), pp. 251-269, August 2013
ISSN: 2276-7827 © 2011 Greener Journals
Manuscript Number: 011213370
Impact of Working Capital Management on the Profitability of Cooperative Unions in East Showa, Ethiopia
Natarajan Vallalnathan and *Getachew Joriye
Department of Cooperatives, Institute of Cooperatives and Development Studies, Ambo University, Ambo, Post Box No; 199, Ethiopia, East Africa.
*Corresponding Author’s Email:
- drvnatarajan1110 @ gmail.com,
The impact of Working Capital Management (WCM) of the cooperative unions in Ethiopia is imperative. Although the impact of WCM on profitability has been studied by some researchers but appreciable efforts have not been made on the sectors of cooperative unions. Therefore, the present study was carried out to investigate the impact of WCM on the profitability of cooperative unions in East Showa, Ethiopia. The quantitative research approach was employed to accomplish the objectives of this study. The secondary data were collected from eight sample cooperative unions in East Showa, Ethiopia that fulfil the criteria of the data availability from the financial statement of the unions during the period from1999-2003 Ethiopian Calender (E.C.). Random effect multiple regression model was used to analyse the panel data for the standard determinants of working capital. The Generalized Least Square (GLS) estimator was used as an efficient estimator for the Breusch Pagan test. The most relevant impact of WCM on profitability of the unions employed based on a sequential regression approach with two alternative specifications of the models. The results showed that Average Collection Period (ACP) has a negative effect on the profitability of the unions and also indicated that as the unions decreased, ACP has increased the profitability of the unions. The results from regression Inventory Turnover Period (ITP) has a positive effect on the profit of the unions and also revealed that the comprehensive measure of WCM i.e. Cash Conversion Cycle (CCC) showed a positive effect on the profitability. This was to mean that as the union increases, a period for cash conversion leads the unions to more profit. The regression results also indicated that there was a positive relationship between liquidity, which was measured by Current Ratio (CR), and profitability of the unions. The results showed a significant positive relationship between the size of the unions and its profitability and a positive relationship between debt used by the cooperative unions and its profitability. The results also delivered some insights on the impact of WCM on profitability of the unions in East Showa zone, Ethiopia. This could be intended to encourage and create conducive environment for cooperative unions to use working capital as a viable source of finance in order to meet their noble objectives. Finally, the focus should be placed on the relationship between ownership and governance structure and their effects on the profitability of the cooperative unions left for further studies to be conducted in future. The beneficiaries of the results of this study was corporate finance academicians whose interest is in the area of impact of WCM on the profitability of cooperative unions, so that they consider the impact of these unique sectors and also helps as a baseline for further studies and the cooperative managers to understand the relationship between WC and profitability for the management of the cooperative unions in Ethiopia.
Keywords: WCM, WC, Cooperative Unions, Profitability, ACP, APP, ITP, CCC.