The Moderating Role of Dividend Payout on the Relationship Between Working Capital Management and Profitability: Evidence from Japan's Technology Hardware and Equipment Industry
DOI:
https://doi.org/10.55578/jift.2505.003Keywords:
Cash conversion cycle, Dividend Payout ratio, FMOLS, Japan technology hardware and equipment industry, Tobin’s QAbstract
This study examines the moderating impact of dividend payout on the relationship between working capital management and profitability. The working capital management is measured by the cash conversion cycle, and return on assets and Tobin’s Q as profitability measure. The data were collected from the Thomson Reuters Eikon database spanning from 2002 to 2023. The study employed the two-step Generalized Method of Moments (GMM), and Fully Modified Ordinary Least Squares (FMOLS) methods, to estimate the moderating effect of dividend payout ratio on the relationship between CCC and profitability. The findings of this study revealed a negative and statistically significant impact of dividend payout on the profitability of Japan's manufacturing firms, particularly in the technology hardware and equipment industry. It also suggests that in industries where high capital expenditures are necessary, maintaining lower dividend payout ratio may be more conducive to sustaining profitability. These findings encourage a re-evaluation of dividend strategies, emphasizing the importance of aligning dividend payouts with the firm's long-term financial and operational goals to avoid undermining profitability. The study extends the inconclusive empirical evidence on the determinants of dividend policy, working capital management and profitability fills the lacuna in existing literature by focusing on how dividend policy influence working capital management practices and profitability of firms in Japan. The findings are also useful to the board of directors of non-financial firms in deciding an appropriate dividend policy, and to the shareholders in making investment decisions.
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