Working Capital Management in Construction Firms: The Role of Cash Holdings and the Challenges of Firm Size

Abstract

This study examines the efficiency of working capital management in Vietnam’s construction sector over the period 2014-2023, using the cash conversion cycle (CCC) as the primary proxy. Based on a panel dataset comprising 2.948 firm-year observations from listed construction companies, the study employs the Feasible Generalized Least Squares (FGLS) estimator to address issues of heteroskedasticity and autocorrelation.The empirical findings indicate that the average cash conversion cycle in the sector is relatively high (250.17 days), reflecting the capital-intensive nature of the industry and the prevalence of prolonged receivables. Two key determinants-cash holdings (CASH) and firm size (SZ)are found to have statistically significant effects at the 1% level. Specifically, higher cash holdings are associated with a significant reduction in the CCC, suggesting improved liquidity management and operational efficiency. In contrast, larger firm size tends to lengthen the CCC, likely due to the complexity and longer duration of large-scale infrastructure projects. This study contributes empirical evidence to the literature on working capital management in an emerging market context and provides managerial implications for optimizing liquidity and receivables control to enhance financial resilience under market volatility.