Skip to main content
SpringerLink
Log in

Working Capital Management Practices and Financial Performance: Evidence from Serbia

  • Chapter
Innovative Management and Firm Performance

Abstract

In the last decade, special attention has been paid to the issue of working capital management. Evidently, many authors suggest that the optimum level of working capital depends on the industry and the nature of its transactions (Walker, 1964; Outram, 1997, Ozbayrak and Akgun, 2006). According to Johnson and Soenen (2003), in order for a company to be able to achieve its aim of shareholder value creation, effective working capital management should be an integral part of its corporate strategy. Net working capital is defined as the difference between firms’ current assets (including accounts receivable, inventories, and cash) and current liabilities (including accounts payable and short term debt). These elements significantly influence company’s liquidity and that is the reason why working capital is often used to evaluate the liquidity of a company. The relevance of this performance measure arises from the fact that the insufficient liquidity of the company can lead to its bankruptcy (Dunn and Cheatham, 1993).

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
eBook
USD 16.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Afza, T., & Nazir, M.S. (2007). Is it better to be aggressive or conservative in managing working capital? Journal of Quality and Technology Management, 3(2), 11–21.

    Google Scholar 

  • Afza, T., & Nazir, M.S. (2008). Working capital approaches and firm’s profitability in Pakistan. Pakistan. Journal of Commerce and Social Sciences, 1, 25–36.

    Google Scholar 

  • Almeida, H., Campello, M., & Weisbach, M. (2004). The cash flow sensitivity of cash. Journal of Finance, 59(4), 1777–1804.

    Article  Google Scholar 

  • Andrews, B.H, Carpenter, J.J. & Gowen, T.L. (2001). A new approach to performance measurement and goals setting. Interfaces, 31(3), 44–54.

    Article  Google Scholar 

  • Atkinson, H. (2006). Strategy implementation: a role for the balanced scorecard? Management Decision, 44(10), 1441–1460.

    Article  Google Scholar 

  • Baños-Caballero, S., Garcia-Teruel, P.J., & Martinez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332–338.

    Article  Google Scholar 

  • Barjaktarović Rakočević, S. (2008a). Uloga banaka na tržištu hartija od vrednosti u. Srbiji. Beograd: Zadužbina Andrejević.

    Google Scholar 

  • Barjaktarović Rakočević, S. (2008b). Banke i portfolio hartija od vrednosti. Pravni život, 57(12), 829–839.

    Google Scholar 

  • Barjaktarović Rakočević, S. (2012). Investiciono bankarstvo i tržište hartija od vrednosti. Beograd: Zadužbina Andrejević.

    Google Scholar 

  • Barjaktarović Rakočević, S., & Benković, S. (2012). Model of regulation of financial institutions — case of Serbia. Metalurgia International, 17(7), 198–204.

    Google Scholar 

  • Barjaktarović Rakočević, S., Benković, S., & Knežević, S. (2011). Corporate governance in Serbian banks. Management — Journal for Theory and Practice of Management, 61, 5–13.

    Google Scholar 

  • Baum, CF., Caglayan, M., Stephan, A., & Talavera, O. (2008). Uncertainty determinants of corporate liquidity. Economic Modelling, 25(5), 833–849.

    Article  Google Scholar 

  • Benković, S., & Barjaktarović Rakočević, S. (2011). Impact of legislation on infrastructure financing by public-private partnership concept. Facta Universitatis, Series: Economics and Organization, 8(4), 401–409.

    Google Scholar 

  • Benković, S., Milo savljević, M., & Barjaktarović Rakočević, S. (2010). Partnership of public and private capital in financing infrastructure projects. Megatrend Review: The International Review of Applied Economics, 7 (2), 313–328.

    Google Scholar 

  • Benković, S., Barjaktarović Rakočević, S., & Milo savljević, M. (2012a). Private capital participation in financing infrastructure projects in Serbia. Metalurgia International, 17(1), 140–145.

    Google Scholar 

  • Benković, S., Barjaktarović Rakočević S., & Zeremski, A. (2012b). The participation of financial institutions in project financing of infrastructure projects. Industrija, 40(1), 149–171.

    Google Scholar 

  • Benković, S., Jednak, S., Milosavljević, M., Žarkić-Joksimović, N., & Kragulj, D. (2011). Risks of project financing of infrastructure projects in Serbia. African Journal of Business Management, 5(7), 2828–2836.

    Google Scholar 

  • Bhattacharya, S. (2001). Insider trading, investment, and liquidity: a welfare analysis. Journal of Finance, 56(3), 1141–1156.

    Article  Google Scholar 

  • Bigelli, M., & Sanchez-Vidal, J. (2012). Cash holdings in private firms. Journal of Banking & Finance, 36, 26–95. Doi: 10.1016/j.jbankfin.2011.06.004.

    Article  Google Scholar 

  • Bisbe, J., & Otley, D. (2004). The effects of the interactive use of management control systems on product innovation. Accounting, Organizations and Society, 29(8), 709–737.

    Article  Google Scholar 

  • Bogojević Arsić, V., Latinović, M. Carbon Performance of Energy Sector in Serbia, Metalurgia International, 6, 103–108.

    Google Scholar 

  • Bontis, N., Dragonetti, N.C., Jacobsen, K., & Roos, G. (1999). The knowledge toolbox: a review of the tools available to measure and manage intangible resources. European Management Journal, 17(4), 391–402.

    Article  Google Scholar 

  • Bourne, M., Mills, J., Wilcox, M., Neely, A., & Platts, K. (2000). Designing, implementing and updating performance measurement systems. International Journal of Operations and Production Management, 20(7), 754–771.

    Article  Google Scholar 

  • Braam, G.J.M., & Nijssen, E.J. (2004). Performance effects of using the balanced scorecard: a note on the Dutch experience. Long Range Planning, 37(4), 335–349.

    Article  Google Scholar 

  • Cuñat, V. (2007). Trade credit: suppliers as debt collectors and insurance providers. Review of Financial Studies, 20, 491–527.

    Article  Google Scholar 

  • Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3), 573–587.

    Article  Google Scholar 

  • Dewing, A.S. (1941). The Financial Policy, 4th edn. New York: The Ronald Press Company.

    Google Scholar 

  • Ding, S., Guariglia, A., & Knight, J. (2013). Investment and financing constraints in China: does working capital management make a difference? Journal of Banking & Finance, 37(5), 1490–1507.

    Article  Google Scholar 

  • Drake, P. P., & Fabozzi, F. J. (2010). The Basics of Finance: An Introduction to Financial Markets, Business Finance, and Portfolio Management. Hoboken: John Wiley & Sons.

    Book  Google Scholar 

  • Drew, S.A., & Kaye, R. (2007). Engaging boards in corporate direction-setting: strategic scorecards. European Management Journal, 25(5), 359–369.

    Article  Google Scholar 

  • Dunn, P., & Cheatham, L. (1993). Fundamentals of small business financial management for start-up, survival, growth, and changing economic circumstances. Managerial Finance, 19(8), 1–13.

    Article  Google Scholar 

  • ĐJ urić, D., KneŽević S., & Barjaktarović Rakočević, S. (2011). Accounting information system in banking planning and control. Management — Journal for Theory and Practice of Management, 61, 43–55.

    Google Scholar 

  • Evans, J.R. (2004). An exploratory study of performance measurement systems and relationships with performance results. Journal of Operations Management, 22, 219–232.

    Article  Google Scholar 

  • Garcia-Teruel, P.J., & Martinez-Solano, P. (2007). Effects of working capital management on SME profitability. International Journal of Managerial Finance, 3(2), 164–177.

    Article  Google Scholar 

  • Gimbert, X., Bisbe, J., & Mendoza, X. (2010). The role of performance measurement systems in strategy formulation processes. Long Range Planning, 43, 477–497.

    Article  Google Scholar 

  • Großwiele, L., Röglinger, M., & Friedl, B. (2013). A decision framework for the consolidation of performance measurement systems. Decision Support Systems, 54(12), 1016–1029.

    Article  Google Scholar 

  • Hale, G., & Long, C. (2011a). What are the sources of financing of the Chinese firms? In Cheung, Y.-W., Kakkas, V., Ma, G. (eds), The Evolving Role of Asia in Global Finance. Emerald Group Publishing Limited.

    Google Scholar 

  • Hale, G., & Long, C. (2011b). If You Try, You’ll Get by: Chinese Private Firms’ Efficiency Gains from Overcoming Financial Constraints. Working paper, Federal Reserve Bank of San Francisco.

    Google Scholar 

  • Harford, J. (1999). Corporate cash reserves and acquisitions. Journal of Finance, 54, 1967–1997.

    Article  Google Scholar 

  • Henri, J.F. (2006). Management control systems and strategy: a resource-based perspective. Accounting, Organizations and Society, 31, 529–558.

    Article  Google Scholar 

  • Iskandar-Datta, M.E., & Jia, Y. (2012). Cross-country analysis of secular cash trends. Journal of Banking & Finance, 36, 898–912. Doi: 10.1016/j.jbankfin.2011.10.003.

    Article  Google Scholar 

  • Ittner, C. & Larcker, D. (2003). Coming up short on nonfinancial performance measurement. Harvard Business Review, 81(11), 88–95.

    Google Scholar 

  • Johnson, R., & Soenen, L. (2003). Indicators of successful companies. European Management Journal, 21(3), 364–369. doi: 10.1016/S0263-2373(03)00050-1

    Article  Google Scholar 

  • Kaplan, R.S., & Norton, D.P. (2000). The Strategy-Focused Organization. Boston: Harvard Business Publishing.

    Google Scholar 

  • Kaplan, R.S., & Norton, D.P. (2004). Strategy Maps. Boston: Harvard Business Publishing.

    Google Scholar 

  • Kaplan, R.S., & Norton, D.P. (2006). How to implement a new strategy without disrupting your organization. Harvard Business Review, 84(3), 100–109.

    Google Scholar 

  • Kaplan, R.S., & Norton, D.P. (2008). Mastering the management system. Harvard Business Review, 86(1), 63–77.

    Google Scholar 

  • Knežević, S., Barjaktarović Rakočević, S., & Đ urić, D. (2011a). Management accounting in achieving competitive advantage and bank controlling. Management — Journal for Theory and Practice of Management, 59, 5–13.

    Google Scholar 

  • Knežević, S., Barjaktarović Rakočević S., & Đ urić, D. (2011b). Implementation and restraints of ratio analysis of financial reports in financial decision making. Management — Journal for Theory and Practice of Management, 61, 25–33.

    Google Scholar 

  • Knežević, S., Barjaktarović Rakočević S., & Đ urić, D. (2012a). Finansijsko odlučivanje u bankama. Beograd: Fakultet organizacionih nauka.

    Google Scholar 

  • Knežević, S., Marković, M., & Barjaktarović Rakočević, S. (2012b). Assessing efficiency in banking. Industrija, 40(3), 71–92.

    Google Scholar 

  • KPMG China (2011). Cash Matters: Cash and Working Capital Management in China. Hong Kong, China: KPMG.

    Google Scholar 

  • Latinović, M. (2008). Carbon markets. Management — Journal for Theory and Practice of Management, 13 (49–50), 101–109.

    Google Scholar 

  • Lind, L., Pirttilä, M., Viskari, S., Schupp, F., & Karri, T. (2012). Working capital management in automotive industry: financial value chain analysis. Journal of Purchasing & Supply Management, 18, 92–100.

    Article  Google Scholar 

  • Löning, H., & Besson, M. (2002). Can distribution channels explain differences in marketing and sales performance measurement systems? European Management Journal, 20(6), 597–609.

    Article  Google Scholar 

  • Luo, M.M., Lee, J.J., & Hwang, Y. (2009). Cash Conversion Cycle, Firm Performance and Stock. Retrieved from: http://www90.homepage.villanova.edu/michael.pagano/ML. CCC_20090420.pdf, Last accessed May 3, 2012.

    Google Scholar 

  • Lyroudi, K., & Lazaridis, J. (2000). The Cash. Retrieved from: http://papers.ssrn.com/paper.taf?abstractid=236175. Last accessed: April 26, 2012.

    Google Scholar 

  • Madura, J., & Fox, R. (2011). International Financial Management, 2nd edn. Hampshire: South-Western Cengage Learning EMEA.

    Google Scholar 

  • McLaney, E. (2006). Business Finance: Theory and Practice, 7th edn. Harlow, England: Pearson/Prentice Hall.

    Google Scholar 

  • Melnyk, S.A., Stewart, D.M., & Swink, M. (2004). Metrics and performance measurement in operations management: dealing with the metrics maze. Journal of Operations Management, 22(3), 209–218.

    Article  Google Scholar 

  • Milosavljević, M., & Benković, S. (2009). Modern aspects of public private partnership. International Cross-industry Journal, Perspectives of Innovations, Economics and Business, 3, 25–28.

    Article  Google Scholar 

  • Milosavljević, M., & Benković, S. (2014). Education as a driver of entrepreneurship among graduates in Serbia. Actual Problems of Economics, 152, 79–86.

    Google Scholar 

  • Mooraj, S., Oyon, D., & Hostettler, D. (1999). The balanced scorecard: a necessary good or an unnecessary evil? European Management Journal, 17(5), 481–491.

    Article  Google Scholar 

  • Murby, L., & Gould, S. (2005). Effective Performance Management with the Balanced Scorecard. Technical Report CIMA/INSEAD.

    Google Scholar 

  • Nazir, M.S., & Afza, T. (2009). Impact of aggressive working management policy on firms’ profitability. The IUP Journal of Applied Finance, 15(8), 19–30.

    Google Scholar 

  • Outram, R. (1997). Turndown that order. Management Today, October, 112–113.

    Google Scholar 

  • Ozbayrak, M., & Akgun, M. (2006). The effects of manufacturing control strategies on the cash conversion cycle in manufacturing systems. International Journal of Production Economics, 103, 535–550.

    Article  Google Scholar 

  • Padachi, K. (2006). Trends in working capital management and its impact on firms’ performance: an analysis of Mauritian small manufacturing firms. International Review of Business Research Papers, 2(2), 45–58.

    Google Scholar 

  • Paul, S. Y., Devi, S. S., & Teh, C. G.(2012). Impact of late payment on firm’s profitability: empirical evidence from Malaysia. Pacific-Basin Finance Journal, 20, 777-792. Doi: 10.1016/j.pacfin.2012.03.004.

    Article  Google Scholar 

  • Poznanić, V., & Milosavljević, M. (2011). Hybrid private-public partnership models. Management — Journal for Theory and Practice of Management, 58, 59–64.

    Google Scholar 

  • Raheman, A., & Nasr, M. (2007). Working capital management and profitability — case of Pakistani firms. International Review of Business Research Papers, 3(1), 279–300.

    Google Scholar 

  • Ross, S.A., Westerfield, R.W., & Jaffe, J. (2005). Corporate Finance, 7th international edn, Singapore: McGraw Hill.

    Google Scholar 

  • Samiloglu, F., & Demirgunes, K. (2008). The effect of working capital management on firm profitability: evidence from Turkey. The International Journal of Applied Economics and Finance, 2(1), 44–50.

    Article  Google Scholar 

  • Sharma, A.K., & Kumar, S. (2011). Effect of working capital management on firm profitability: empirical evidence from India. Global Business Review, 12(1), 159–173. doi: 10.1177/097215091001200110

    Article  Google Scholar 

  • Simons, R. (1991). Strategic orientation and top management attention to control systems. Strategic Management Journal, 12(1), 49–62.

    Article  Google Scholar 

  • Simons, R. (1995). Control in an age of empowerment. Harvard Business Review, 73(2), 80–88.

    Google Scholar 

  • Stančić, P., Čupić, M., & Barjaktarović Rakočević, S. (2012a). Influence of board size and composition on bank performance — case of Serbia. Actual Problems of Economics, 8 (134), 466–475.

    Google Scholar 

  • Stančić, P., Čupić, M., Barjaktarović Rakočević, S., & Benković, S. (2012b). Dominant shareholders, board structure and bank performance: evidence from Serbia. Industrija, 40(2), 51–68.

    Google Scholar 

  • Tuomela, T.S. (2005). The interplay of different levers of control: a case study of introducing a new performance measurement system. Management Accounting Research, 16, 293–320.

    Article  Google Scholar 

  • Uyar, A. (2009). The relationship of cash conversion cycle with firm size and profitability: an empirical investigation in Turkey. International Research Journal of Finance and Economics, 24, 186–193.

    Google Scholar 

  • Vahid, T.K., Elham, G., Mohse, A., & Mohammadreza, E. (2012). Working capital management and corporate performance: evidence from Iranian companies. Procedia — Social and Behavioural Sciences, 62, 1313–1318.

    Article  Google Scholar 

  • Viskari, S., Ruokola, A., Pirttilä, M., & Kärri, T. (2012). Advanced model for working capital management: bridging theory and practice. International Journal of Applied Management Science, 4(1), 1–17.

    Article  Google Scholar 

  • Walker, E.W. (1964). Towards a theory of working capital. Engineering Economist, 9, 21–35

    Article  Google Scholar 

  • Wang, Y.J. (2002). Liquidity management, operating performance, and corporate value: evidence from Japan and Taiwan. Journal of Multinational Financial Management, 12(2), 159–69.

    Article  Google Scholar 

  • Widener, S.K. (2007). An empirical analysis of the levers of control framework. Accounting, Organizations and Society, 32(7–8), 757–788.

    Article  Google Scholar 

  • Wouters, M. (2009). A developmental approach to performance measures — results from a longitudinal case study. European Management Journal, 27, 64–78.

    Article  Google Scholar 

  • Zariyawati, M.A, Annuar, M.N., & Abdul Rahim A.S. (2009). Effect of working capital management on profitability of firms in Malaysia. International Symposium on Finance and Accounting (ISFA), July 6–8, Malaysia. Retrieved from: bai-conference.org/BAI2009/Pages/…/isfa2009.submission_13.doc, Last accessed: April 25, 2012.

    Google Scholar 

  • Žarkić-Joksimović, N., Benković, S., & Milosavljević, M. (2013). Financial management, 2nd edn. Belgrade, Serbia: University of Belgrade.

    Google Scholar 

Download references

Authors
  1. Slađana Barjaktarović Rakočević
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Milica Latinović
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Miloš Milosavljević
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Faculty of Organizational Sciences (FOS), University of Belgrade, Serbia

    Maja Levi Jakšić , Slađana Barjaktarović Rakočević  & Milan Martić ,  & 

Copyright information

© 2014 Slađana Barjaktarović Rakočević, Milica Latinović, and Miloš Milosavljević

About this chapter

Cite this chapter

Rakočević, S.B., Latinović, M., Milosavljević, M. (2014). Working Capital Management Practices and Financial Performance: Evidence from Serbia. In: Jakšić, M.L., Rakočević, S.B., Martić, M. (eds) Innovative Management and Firm Performance. Palgrave Macmillan, London. https://doi.org/10.1057/9781137402226_13

Download citation

Publish with us

Policies and ethics

Search

Navigation