The Impact of Working Capital Management on Firm Profitability: Evidence from Manufacturing Firms in Uzbekistan

Abstract

Working capital management is central to short-term financial decisions in manufacturing firms, yet evidence on whether shortening the cash conversion cycle (CCC) raises profitability remains inconsistent across institutional settings. Although the negative CCC-profitability relationship is well documented in developed and other emerging markets, rigorous within-firm evidence from Uzbekistan's manufacturing sector remains absent, particularly using panel methods that separate persistent firm differences from year-to-year change. This study analyzes 519 firm-year observations for 118 manufacturing joint-stock companies in Uzbekistan (2019-2025), drawn from structured disclosures on the official Openinfo portal, using pooled OLS, random effects, firm-and-year fixed effects, and Mundlak correlated random effects with firm-clustered standard errors. Pooled estimates show that 100 additional CCC days are associated with a 0.784-percentage-point lower return on assets (ROA) (p = 0.007), but the effect becomes small and statistically insignificant under firm fixed effects (-0.169 points; p = 0.640). A quadratic model reveals a U-shaped association with a minimum at 646.5 days, far into the upper tail. Leverage is consistently negative and firm size positive. Rather than pursuing a universal CCC target, managers should benchmark cycle length against firm-specific operating history and prioritize diagnosis of persistent, extreme cycle positions over generic compression targets.