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.