Aktas et al.(2015) found a non-linear relationship between working capital management (WCM) and profitability when the industry median of the WCM indicator was used as the target. This implies a relatively negative relationship between WCM and profitability in firms with excess working capital and a relatively positive one in firms with working capital less than the industry median.

However, there are two limitations to the aforementioned study. First, it used only the industry median as an indicator to test the non-linearity of the relationship between WCM and profitability. Second, it did not consider socially influential events, such as COVID-19.

Therefore, this study had two objectives. The first is to verify the results obtained when the analysis is conducted for Japanese firms using a non-linear model and including the period during which COVID-19 occurred. Second, we test whether the relationship between WCM and profitability is non-linear using the industry mean as an indicator along with the industry median. We use a non-linear model to analyse the financial data of companies listed on the Tokyo Stock Exchange from 2000 to 2022, which includes the COVID-19 period.

The results are similar to those of a previous study, which used the industry median for the WCM indicator as the target. However, the analysis using the industry mean for WCM indicators as targets did not yield significant results. This is because some industries had unusual amounts of working capital because of the impact of COVID-19.