Working Capital Management Practices and Profitability of AIM Listed SMEs

Abstract

This paper reports the results of an investigation of the effect of Working Capital Management (WCM) practices on profitability of Small and Medium Enterprises (SMEs) listed on the Alternative Investment Market (AIM), from the perspective of financial directors. Specifically, I look at their WCM target level practices, WCM alteration frequency and WCM strategy practices. The analyses are based on questionnaire distributed to 248 AIM listed SMEs. The paper employs OLS regression on responses from 72 managers of AIM listed SMEs. The results show that the WCM practices of AIM listed SMEs managers have an effect on profitability. However, the results show that given the limited resources of SMEs, the main focus of managers should be on the setting of specific target level for WCM so as to increase profitability.