Capital Policy on Firm's Profitability: A Case of the Thai Agro and Food Industry

Abstract

Objective - The objectives of this research include: (1) to identify working capital investment policy and working capital financing policy, (2) to study the effect of working capital investment policy on profitability, and (3) to study the effect of working capital financing policy on profitability. Methodology/Technique - 41 firms in the agro-food industry listed on the Stock Exchange of Thailand are examined in this study. Secondary data was collected and analyzed within a 5-year period between 2013-2017. Findings - The results show that the most frequently employed working capital investment policy is the aggressive approach (46.30%), and the most frequently employed financial policy is the moderate approach (82.90%). According to the inferential statistics, it is concluded that: (1) profitability is significantly affected by the choice of working capital investment policy and a moderate investment policy results in the greatest profitability, and (2) profitability is not affected by the choice of working capital financing policy. Novelty - As a result, firms should focus on the selection of a moderate working capital investment policy when seeking to maximize profits. On the other hand, any type of working capital financing policy (aggressive, conservative, or moderate approach) is appropriate. Type of Paper Empirical Keywords: Working Capital Policy; Profitability; Agro and Food Industry; Thailand. JEL Classification: M10, M40, M41.