Abstract
Family firms are the backbone of the socialist transition to a market-oriented economy in Laos. Working capital is an important area of finance that has not been widely studied in relation to family firms’ decision-making. We hypothesize that working capital has a positive cross-lagged effect on decision-making. The hypotheses were tested on a sample of 779 Laotian family firms from 2016 to 2017 ( t 1 ) and from 2018 to 2019 ( t 2 ) . The analysis was performed using a two-wave cross-lagged model under structural equation modelling. Our results confirm that working capital (access to finance, cash, debt financing, inventory, growth, and profitability) has a positive cross-lagged effect on decision-making. In addition, the findings also suggest that family firms’ early-debt financing could have a vital influence on decision-making. The practical implications of the results are discussed.
Highlights
Working capital is the key management challenge for all family firms, as it affects their capital budgeting, liquidity, and profitability [1,2]
After deletion of missing data, the sample size consisted of 779 Laotian family firms, which were used to test our hypothesis with a two-wave cross-lagged analysis
All variable correlations in a two-wave cross-lagged model, which were the main focus in the present study, indicate that access to finance at t1 correlated with t2 (r = 0.129, p < 0.05)
Summary
Working capital is the key management challenge for all family firms, as it affects their capital budgeting, liquidity, and profitability [1,2]. As previous studies have noted, ASEAN countries showed high growth in family firms after Laos, Vietnam, and Cambodia and Myanmar opened their economies in 1986, the early 1990s, and the year 2000, respectively, with the latter decade being of market liberalization globally [9,10]. In terms of gross domestic product since 2018, family firms in Laos have contributed 38.36%, in Vietnam 36%, in Cambodia 36.4%, and in Myanmar 50%. This region is an economic corridor connection that creates global market liberalization strategies between domestic and foreign trade. Eddleston et al [11] have identified that the effect on working capital and decision-making is seen in increased liability, liquidity, and return on assets
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