Table 2. Variables description table... | Emerald Publishing

Table 2.

Variables description table

Variable	Acronym	Formula	Description and citation
Dependent variable/s
Return on assets	ROA	Earnings before interest and tax (EBIT) divided by total assets = EBIT/total assets	Following (Jose et al., 1996; Wang, 2002) we apply both ROA and ROE to separate asset management and financing influences on profitability - ROA, used as a profitability proxy, is calculated using EBIT to reflect the net operating profits of the firm and avoid non-homogenous interest and tax rates across countries - Authors who used ROA as a profitability proxy (Wang, 2002; Falope and Ajilore, 2009; Şen et al., 2009; Alavinasab and Davoudi, 2013; Erasmus, 2010; Pirttilä et al., 2020; Singhania and Mehta, 2017; Laghari and Chengang, 2019; Baños-Caballero et al., 2012)
Return on equity	ROE	Net income divided by total shareholders’ equity ROE = net income/shareholder’s equity	ROE, used as another profitability proxy that reflects a more investor-oriented profitability proxy and reflects firms’ financing strategies - Authors who used ROA as a profitability proxy (Wang, 2002; Samiloglu and Akgün, 2016; Sharma and Kumar, 2011; Jose et al., 1996)
Independent variables
Net working capital rate	NWCR	NWCR = $\frac{Inventories + Trade Receivables - Trade Payables}{Sales}$	Working capital level neutralized across firms by dividing net working capital by sales (Tsuruta, 2019; Hill et al., 2010; Aktas et al., 2015; Afrifa, 2016)
Control variables
Firm size	Size	Natural logarithm of total assets	Size is controlled because of the economies of scale concept that directly affect firms’ profitability (Laghari and Chengang, 2019; Baños-Caballero et al., 2012; Wang et al., 2020; Moussa, 2019; Şen, et al., 2009)
Leverage	LEV	Total liabilities divided by total assets	Leverage affects working capital management practices and is controlled for in this study (Laghari and Chengang, 2019; Baños-Caballero et al., 2012; Wang et al., 2020; Moussa, 2019)
Sales growth	Growth	Sales growth rate calculated as = (Sales_n – Sales_{n –1})/Sales_{n –1}	Sales growth is used as a proxy for firm growth that directly affects working capital management practices (Laghari and Chengang, 2019; Baños-Caballero et al., 2012; Wang et al., 2020; Afrifa, 2016; Hill et al., 2010)
Cash level	Cash	(Cash and cash equivalents)/sales	To test whether cash levels play a moderating role in the relationship between working capital and profitability, cash level was used as a dummy variable and an interaction term “cash level * NWCR” is added to the modelFor authors who used cash as a control variable (Afrifa, 2016; Laghari and Chengang, 2019)
Economic growth	GDP	Real GDP growth rate calculated as = (GDP_n - GDP_n–1)/GDP_n–1	Because this study applies cross-country analysis, it controls for different gross domestic growth rates and different inflation levels According to Baños-Caballero et al. (2019), the value of net working capital varies across countries and that it depends on both investor protection and a country’s financial and economic development (Wang et al., 2020; Altaf and Shah, 2018; Tsuruta, 2019; Moussa, 2019)

Variable	Acronym	Formula	Description and citation
Dependent variable/s
Return on assets	ROA	Earnings before interest and tax (EBIT) divided by total assets = EBIT/total assets	Following (Jose et al., 1996; Wang, 2002) we apply both ROA and ROE to separate asset management and financing influences on profitability- ROA, used as a profitability proxy, is calculated using EBIT to reflect the net operating profits of the firm and avoid non-homogenous interest and tax rates across countries- Authors who used ROA as a profitability proxy (Wang, 2002; Falope and Ajilore, 2009; Şen et al., 2009; Alavinasab and Davoudi, 2013; Erasmus, 2010; Pirttilä et al., 2020; Singhania and Mehta, 2017; Laghari and Chengang, 2019; Baños-Caballero et al., 2012)
Return on equity	ROE	Net income divided by total shareholders’ equity ROE = net income/shareholder’s equity	ROE, used as another profitability proxy that reflects a more investor-oriented profitability proxy and reflects firms’ financing strategies- Authors who used ROA as a profitability proxy (Wang, 2002; Samiloglu and Akgün, 2016; Sharma and Kumar, 2011; Jose et al., 1996)
Independent variables
Net working capital rate	NWCR	NWCR = $\frac{Inventories + Trade Receivables - Trade Payables}{Sales}$	Working capital level neutralized across firms by dividing net working capital by sales(Tsuruta, 2019; Hill et al., 2010; Aktas et al., 2015; Afrifa, 2016)
Control variables
Firm size	Size	Natural logarithm of total assets	Size is controlled because of the economies of scale concept that directly affect firms’ profitability(Laghari and Chengang, 2019; Baños-Caballero et al., 2012; Wang et al., 2020; Moussa, 2019; Şen, et al., 2009)
Leverage	LEV	Total liabilities divided by total assets	Leverage affects working capital management practices and is controlled for in this study(Laghari and Chengang, 2019; Baños-Caballero et al., 2012; Wang et al., 2020; Moussa, 2019)
Sales growth	Growth	Sales growth rate calculated as =(Sales_n – Sales_{n –1})/Sales_{n –1}	Sales growth is used as a proxy for firm growth that directly affects working capital management practices(Laghari and Chengang, 2019; Baños-Caballero et al., 2012; Wang et al., 2020; Afrifa, 2016; Hill et al., 2010)
Cash level	Cash	(Cash and cash equivalents)/sales	To test whether cash levels play a moderating role in the relationship between working capital and profitability, cash level was used as a dummy variable and an interaction term “cash level * NWCR” is added to the modelFor authors who used cash as a control variable (Afrifa, 2016; Laghari and Chengang, 2019)
Economic growth	GDP	Real GDP growth rate calculated as =(GDP_n - GDP_n–1)/GDP_n–1	Because this study applies cross-country analysis, it controls for different gross domestic growth rates and different inflation levelsAccording to Baños-Caballero et al. (2019), the value of net working capital varies across countries and that it depends on both investor protection and a country’s financial and economic development(Wang et al., 2020; Altaf and Shah, 2018; Tsuruta, 2019; Moussa, 2019)