​Working Capital Management, Liquidity, and Profitability: The Moderating Role of Firm Size in Indonesia

Abstract

This study investigates the empirical relationships among working capital management, corporate liquidity, and profitability while evaluating the moderating role of firm size within the Fast-Moving Consumer Goods (FMCG) manufacturing sector in Indonesia. The investigation utilizes an exhaustive panel dataset of 23 consumer goods manufacturing firms listed on the Indonesia Stock Exchange from 2016 to 2024, comprising 207 firm-year observations across four distinct industry subsectors. Working capital management is proxied by the Cash Conversion Cycle (CCC), liquidity by the Current Ratio (CR), corporate profitability by Return On Assets (ROA), and firm size by the natural logarithm of total assets. Moderated regression analysis demonstrates that the cash conversion cycle exerts a statistically significant negative effect on return on assets, confirming that accelerated operational velocity and reduced capital commitment enhance economic returns. Conversely, liquidity exhibits a significant negative relationship with profitability, demonstrating that excessive preservation of unproductive current assets imposes severe opportunity costs. Firm size directly bolsters profitability through economies of scale and institutional endowments, while acting as a significant quasi-moderator that intensifies the detrimental effects of both prolonged cash cycles and asset over-liquidity. These results underscore that large enterprises face magnified efficiency penalties and must implement disciplined working capital governance. Crucially, managers should shorten cash conversion cycles through internal process innovations and collaborative supply chain coordination rather than predatory payment extensions that jeopardize vulnerable suppliers.