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The paper aims to investigate the dynamic relationship between working capital management and firm profitability for a sample of firms from eight European Union (EU) countries for the period 2006–2015.

The panel regression model is used in the study. Firm profitability is measured using the return on assets (ROA) ratio, whilst cash conversation cycle, financial leverage, size, tangibility and cash flow ratio are used as independent variables. The novelty of this study is the use of cash flow ratio to develop the analysis firms by dividing them as healthy and nonhealthy.

The paper reveals that working capital management affects firm profitability, and a positive relationship exists between them. The paper shows differences of working capital management and firm profitability across countries. The striking result of this study is that an inverted U-shape relationship exists between working capital management and firm profitability. Whereas the findings suggest that firms should be as close as possible to the optimal length of cash cycle to increase profitability, and managers should give a priority to working capital optimization.

The authors consider results of this study relevant to both researchers and business policymakers in the field of working capital management policies.

The purpose of this study is to empirically test the hypothesis about substitution of trade and bank credits during the crisis period among 1,570 firms from 16 developing countries.

The study examines the dynamics of trade credits, following previous studies with special emphasis on the research by Love et al. (2007). The foregoing methodology was expanded by taking into account the effects of the interdependence between firms by means of spatial panel model.

The study reveals that, taking into account spatial effects, there is a positive relationship between bank and trade credits, that is, they behave as complements for each other. Significant positive spatial correlation, obtained for the firms within the same country or cluster, points to the presence of externalities inside these groups. The latter implies that neighboring firms demonstrate similar unidirectional dynamics of trade credits.

Results of this study may create a basis for policy implementation in the sphere of corporate lending, and allow to build appropriate supporting policies during crisis period.