Analyzing the Efficiency of Working Capital Management: a New Approach Based on DEA-Malmquist Technology

Abstract

In this study, we analyze the efficiency of working capital management (WCME) for Gulf companies before and during the coronavirus crisis, then explore the influence of the coronavirus crisis on WCME. This study uses several techniques to achieve its goals, including the Malmquist index (MI), data envelopment analysis (DEA), and Tobit regression. The results demonstrate that most firms (approximately 84%) adopt a conservative strategy for their WCM. The WCME results revealed a statistical difference in the technological and pure efficiency scores for companies before and during the coronavirus crisis, while the results revealed no statistical difference in the technical, scale, and total factor productivity scores. Tobit’s results show that the coronavirus crisis had no significant influence on companies’ WCM performance. Finally, our results indicate that firms that are efficient in terms of WCM have higher sales returns and net income. The findings of this study have important implications for stakeholders to increase their awareness of companies’ WCM performance before and during a crisis. In addition, the results could have implications for trading strategies as investors and financiers seek to invest in companies with good WCM. The implications of WCM performance on social interests would cause decision-makers to use the best strategies and procedures to enhance WCM activities to improve their investments and image in the community in which it operates. We advance a novel contribution to the literature by analyzing and appraising the WCME for companies before and during the coronavirus crisis using a new approach based on DEA-Malmquist technology and then examining whether the coronavirus crisis has affected the WCME.

Does the efficiency of working capital management and environmental, social, and governance performance affect a firm’s value? Evidence from the United States

“…Thus, the outcome above suggests that H1 is somewhat supported. These findings are consistent with those of previous studies such as Habib and Kayani (2022); Habib and Mourad (2022). Furthermore, the adopted efficiency model findings demonstrated that most firms under investigation were relatively inadequate regarding WCME and required correctional efforts by decision-makers to accomplish most reasonable efficiency, directly related to enhancing firm sales and net income.…”

Does the Efficiency of a Firm’s Intellectual Capital and Working Capital Management Affect Its Performance?

“…A high ratio indicates high investment in current assets in relation to total assets. Companies can adopt either aggressive or conservative WCI policy (Habib & Mourad, 2022 ). Under an aggressive WCI policy, firms run the risk of working capital inadequacy, as the investment in current assets is low (Habib & Mourad, 2022 ).…”

“…Companies can adopt either aggressive or conservative WCI policy (Habib & Mourad, 2022 ). Under an aggressive WCI policy, firms run the risk of working capital inadequacy, as the investment in current assets is low (Habib & Mourad, 2022 ). The aggressive strategy provides higher liquidity to firms through low investment in receivables and inventory, but at the cost of low sales (Habib & Mourad, 2022 ).…”

Analyzing the efficiency of Chinese primary healthcare institutions using the Malmquist-DEA approach: Evidence from urban and rural areas

“…A sensitivity analysis was used to analyze the internal and external validity of the DEA model and Malmquist model results ( 60 ). In this study, the output variables of the basic model were removed from the model sequentially ( 19 , 20 ), and the first and last years were also removed from the model sequentially ( 61 ).…”