Rethinking the net operating working capital (NWC)-profitability relationship: Insights from industry-specific practices in olive oil -producing industry

Previous studies have provided mixed evidence regarding the effect of working capital management (WCM) on firm profitability. Recent literature highlights the importance of macroeconomic and institutional conditions in shaping this relationship. However, industry-specific factors in WCM practices remain underexplored. Addressing this gap, the study focuses on the olive oil-producing industry. By using dynamic panel data methods in a sample of 811 Spanish SMEs from 2012 to 2022, the analysis reveals that sector-specific characteristics, particularly those related to inventory management, lead to markedly different effects of inventory conversion periods on economic profitability compared to other industries. The findings demonstrate the need to take sector-specificities into account in the study of the net operating working capital (NWC)-profitability relationship. The study also offers valuable insights for managers and policymakers seeking to improve the financial performance of the olive oil-producing industry and industries with similar inventory management characteristics.