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Working Capital Management in Indonesia: An Analysis on Over-investment and Under-investment Firms

Gadjah Mada International Journal of Business (GamaIJB) · Vol. 21 No. 1 (2019) · pp. 1–18

DOI
10.22146/gamaijb.28354
ISSN
2338-7238, 1411-1128
Published
2019-04-22
Publisher
Master in Management, Faculty of Economics and Business, Universitas Gadjah Mada
Language
eng
License
creativecommons.org/licenses/by-sa/4.0

Abstract

This study aims to examine the existence of excess working capital in Indonesian firms and its effect on the firms’ performance and risk. The sample includes 425 firm-year observations of Indonesian manufacturing firms for the period 2010 – 2014. To account for the potential asymmetric relation between excess Net Working Capital (NWC) and firm performance, an asymmetric regression model is employed, allowing the slope coefficient of the excess NWC to be different for positive and negative excess NWC. The results indicate (i) the existence of an optimal level of working capital, (ii) higher excess working capital leads to lower performance and risk, (iii) additional investment in working capital reduces firms’ performance for those with positive excess working capital. It is also documented that (iv) additional investment in working capital reduces firms’ risk for those that have working capital deficiencies. The findings have important implications for corporate managers in determining the optimal level of working capital.

Keywords

Collaboration network of the authors

3 authors · 2 co-authorship links

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  • Universitas Airlangga
  • Affiliation unknown
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Turkhan Ali Abdul ManapAffiliation unknown1

Affiliations come from OpenAlex; journal OAI-PMH metadata carries none. Authors without an OpenAlex ID are matched by name, which can merge or split people.

Metadata source: OAI-PMH (metadata jurnal) https://journal.ugm.ac.id/gamaijb/oai, first harvested 28 Okt 2026, last seen 28 Okt 2026.
Original metadata (oai_dc) 
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	<dc:title xml:lang="en-US">Working Capital Management in Indonesia: An Analysis on Over-investment and Under-investment Firms</dc:title>
	<dc:creator>Setianto, Rahmat Heru</dc:creator>
	<dc:creator>Pratiwi, Adinda</dc:creator>
	<dc:subject xml:lang="en-US">Business; Finance</dc:subject>
	<dc:subject xml:lang="en-US">working capital management, excess working capital, performance, risk</dc:subject>
	<dc:subject xml:lang="en-US">G31, G32</dc:subject>
	<dc:description xml:lang="en-US">This study aims to examine the existence of excess working capital in Indonesian firms and its effect on the firms’ performance and risk. The sample includes 425 firm-year observations of Indonesian manufacturing firms for the period 2010 – 2014. To account for the potential asymmetric relation between excess Net Working Capital (NWC) and firm performance, an asymmetric regression model is employed, allowing the slope coefficient of the excess NWC to be different for positive and negative excess NWC. The results indicate (i) the existence of an optimal level of working capital, (ii) higher excess working capital leads to lower performance and risk, (iii) additional investment in working capital reduces firms’ performance for those with positive excess working capital. It is also documented that (iv) additional investment in working capital reduces firms’ risk for those that have working capital deficiencies. The findings have important implications for corporate managers in determining the optimal level of working capital.</dc:description>
	<dc:publisher xml:lang="en-US">Master in Management, Faculty of Economics and Business, Universitas Gadjah Mada</dc:publisher>
	<dc:contributor xml:lang="en-US"></dc:contributor>
	<dc:date>2019-04-22</dc:date>
	<dc:type>info:eu-repo/semantics/article</dc:type>
	<dc:type>info:eu-repo/semantics/publishedVersion</dc:type>
	<dc:type xml:lang="en-US">Peer-reviewed Article</dc:type>
	<dc:format>application/pdf</dc:format>
	<dc:identifier>https://journal.ugm.ac.id/gamaijb/article/view/28354</dc:identifier>
	<dc:identifier>10.22146/gamaijb.28354</dc:identifier>
	<dc:source xml:lang="en-US">Gadjah Mada International Journal of Business; Vol 21, No 1 (2019): January-April; 1-18</dc:source>
	<dc:source>2338-7238</dc:source>
	<dc:source>1411-1128</dc:source>
	<dc:language>eng</dc:language>
	<dc:relation>https://journal.ugm.ac.id/gamaijb/article/view/28354/24329</dc:relation>
	<dc:rights xml:lang="en-US">Copyright (c) 2019 Gadjah Mada International Journal of Business</dc:rights>
	<dc:rights xml:lang="en-US">http://creativecommons.org/licenses/by-sa/4.0</dc:rights>
</oai_dc:dc>