Working capital financing and corporate profitability in the ASEAN region: The role of financial development

Rahmat Heru Setianto, Rani Septiani Sipayung, W. N.W. Azman-Saini

Research output: Contribution to journalArticlepeer-review

9 Citations (SciVal)


Objective: This article empirically investigates the role played by financial development in determining the relationship between working capital financing and firms’ profitability. Research Design & Methods: Employing data of publicly listed manufacturing firms in five ASEAN countries – namely Indonesia, Malaysia, Philippines, Singapore, and Thailand – spanning 2009-2018, resulted in 6183 firm-years observations. This study conducts an analysis using the two-steps generalized method of moments (GMM) estimator. Findings: The inverted U-shape effect of working capital financing on firm profitability is confirmed. Moreover, new evidence appeared that firms which operate in more financially developed regions have the opportunity to utilise a greater percentage of short-term debt without destroying their profitability. Implications & Recommendations: Corporate managers should avoid using excessive short-term debt to finance their working capital requirement as the risk of refinancing and interest outweigh its benefit. Secondly, given the significant role played by financial development, policy makers should give priority to financial reforms and development to ensure firms have access to finance and hence foster their growth for the benefit of the economy. Contribution & Value Added: This article contributes to the existing literature in two ways. Firstly, this is the first study to analyse the role of financial development on working capital financing and profitability relation-ship. Secondly, the study extends the insight of this research area onto a large emerging region that has never been studied before: the ASEAN region.

Original languageEnglish
Pages (from-to)51-64
Number of pages14
JournalEntrepreneurial Business and Economics Review
Issue number1
Publication statusPublished - Mar 2022


  • Financial development
  • Performance
  • Working capital financing


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