Working Capital Management and Profitability of Vietnamese Listed Firms: A Threshold Regression Approach

This paper explores how variations in short term capital management influence firms’ profitability within Vietnam’s stock market during 2014–2023. Utilizing panel data from 1,158 firms traded on HSX, HNX, and UPCOM, the research adopts a threshold regression methodology to examine how key WCM indicators—namely days sales outstanding (DSO), days payables outstanding (DPO), days sales of inventory (DSI), operating cash cycle (OCC), and cash conversion cycle (CCC) generate differing effects on financial performance (measured by ROA and ROE) depending on levels of cash holdings, which serve as the threshold variable. The findings reveal that, once firms surpass a certain liquidity threshold, the adverse impact of prolonged collection, payment, or inventory periods on profitability becomes more pronounced. Moreover, cash holdings are shown to play a significant and beneficial role in enhancing operational performance. These results underscore the existence of threshold effects within working capital management and highlight the necessity for listed firms to design WCM policies that are responsive to their actual liquidity conditions. The research offers practical implications for optimizing working capital policies to improve financial outcomes and bolster sustainable competitiveness in the marketplace.