Lessons Learned in the Recovery of Business Performance from the COVID-19 Endemic: The Importance of Working Capital Management and Financial Management

Abstract

This article empirically examines the determinants of business performance and working capital management, by adding financial management as a moderator. Data from 102 batik tulis MSMEs in Rembang Regency and Pati Regency, Central Java-Indonesia during the transition to the COVID-19 endemic was processed using partial least squares (PLSs). The total sample was obtained from an on-site survey of 125 batik tulis MSMEs registered at the Cooperative and MSME Agency from both locations. This indicates that almost 20% of business units closed due to the COVID-19 pandemic. This study demonstrates that the five hypotheses proposed are supported by empirical data, namely: (i) access to credit is shown to have a positive effect on business performance; (ii) access to credit has a positive effect on working capital management; (iii) working capital management has a positive effect on business performance; (iv) financial management moderates the effect of working capital management on business performance; and (v) working capital management mediates the effect of access to credit on business performance. The best practices from this study reveal that business pressures due to the pandemic actually increase the courage of entrepreneurs to take calculative risks by utilizing sources of funds from debt to support innovation activities and strive for superior performance. Having fixed financial obligations arising from debt financing actually forces entrepreneurs to manage business finances better and more professionally. Entrepreneurs will try to shorten their cash cycle so that cash inflows can continue to rotate the daily business wheel as well as to pay off business debts. This finding can be a concern for the government in designing policies and work programs with financial nuances to provide immunity for MSMEs during the COVID-19 endemic transition period.