The Differential Impact of Working Capital Levels on Corporate Profitability and Value: A Comparison between Manufacturing and Non-Manufacturing Industries

This study investigates the impact of working capital levels on corporate performance, measured by ROA and ROE, and corporate value, represented by Tobin’s Q, using data from KOSDAQ-listed companies between 2000 and 2022. The analysis differentiates between manufacturing and non-manufacturing sectors, employing panel regression analysis to explore the relationship between working capital and corporate performance. Key findings reveal that, first, the working capital level (WCI) has a significant positive impact on both ROA and ROE, with a notably stronger effect on ROE, suggesting it as a more suitable measure of profitability. Second, decomposing working capital into quick assets (QA) and inventory assets (IA) shows that QA positively influences both ROA and ROE, while IA positively impacts ROE only in manufacturing. This underscores the importance of inventory management for profitability in manufacturing. Lastly, the working capital level significantly enhances corporate value (Tobin’s Q), especially in non-manufacturing sectors, where increased QA contributes positively to corporate value, while IA generally has a negative effect, highlighting the necessity of efficient inventory management for sustaining corporate value.