Working Capital Management and Firm Performance

Abstract

This study examines the relationship between working capital management (WCM) and firm performance during and after the financial crisis of 2007-2008 in Nigeria. During the crisis, lending conditions were deeply affected, and financing operations became challenging for firms. Although research findings on the causes and effects of the crisis on the economy are known, what remains unknown is whether the financial crisis had a significant impact on WCM performance. This knowledge is essential for developing resilience to withstand a possible crisis in the future because vulnerability remains high as a result of the deepened integration of many economies. Thus, this study addresses this issue using a sample of 675 firm-year observations from listed firms on the Nigerian stock exchange for the period from 2007 to 2015. The differences between the two periods, the crisis period and then after the crisis period, is operationalised through two analyses. First, OLS regression analysis was conducted to determine the explanatory powers of WCM for the two periods via their R2s. Second, a test of difference using the Cramer Z-statistic for the two periods was conducted. The findings indicate that WCM variables have more explanatory power (R2) in the period after the crisis than during the crisis. Also, the results revealed that the Z-scores are significant, implying that a significant difference existed between the two periods. This means that WCM was affected during the financial crisis and led to low profitability, whereas, during the after-crisis period, WCM associates with higher profitability.

Does working capital management improve financial performance in China’s agri-food sector during COVID-19? A comparison with the 2008 financial crisis

“…In WCM, the daily economic activities of companies are influenced by both internal and external factors (e.g. policies, consumer preferences, and economic environment), and a uniform management style is not scientific [ 38 ]. Companies need to choose different ways of WCM according to the actual situation in order to promote the optimization and improvement of WCM.…”

Working capital and firm performance: role of COVID-19 disruption

“…The difference between current assets and current liabilities is known as working capital (Baños-Caballero et al, 2014;Deloof, 2003). Prior studies have comprehended the importance of working capital and suggest that working capital has a direct impact on firm financial performance (Sawarni et al, 2020;Simon et al, 2018Simon et al, , 2019Baños-Caballero et al, 2014). However, literature has put forward competitive views on the relationship between working capital level and firm performance.…”

“…Additionally, the report emphasizes that Indian companies might release INR 1.8 trillion in cash flow by using efficient WCM methods (Sawarni et al ., 2020). Therefore, it is high time that organizations must involve in efficient and effective WCM practices to ensure better firm performance (Simon et al ., 2018; Sharma and Kumar, 2011; Eljelly, 2004; Deloof, 2003).…”

Working Capital Management and Performance of Telecommunication Companies in ASEAN-4: The Role of Financial Development

“…According to Sagner (2014), working capital mismanagement hinders financial performance. Working capital management is usually proxied by cash conversion cycle (CCC) variables, inventory conversion period, average accounts receivable period, and accounts payable period both in aggregate and disaggregate (Bashir & Regupathi, 2021;Basyith et al, 2021;Chand Garg, 2022;Firmansyah et al, 2018;Hoang, 2015;Hussain et al, 2021;Kayani et al, 2020;Mandipa & Sibindi, 2022;Mansoori & Joriah Muhammad, 2012;S et al, 2017;Simon et al, 2019;Syeda, 2021;Tahir & Anuar, 2016).…”