Capital Management Practices Research Articles

Determinants of working capital management for emerging markets firms: evidence from the MENA region

PurposeThis study examines the impact of firm-specific and macroeconomic factors on the working capital behavior of firms listed in the Middle East and North African (MENA) region.Design/methodology/approachThis study is based on a panel data analysis of 687 firms listed on 11 MENA markets, carried out using the Generalized Method of Moments (GMM) approach.FindingsThe results of this study reveal that profitable firms with high levels of operating cash flows adopt a conservative working capital management. Young firms with rapid growth rates, highly leveraged firms and firms with large investments in fixed assets have higher liquidity needs, which explains their tendency to pursue aggressive working capital strategies. Similarly, large firms exercise their bargaining power over their clients and suppliers to implement an aggressive approach of working capital management. Finally, firms do not have the luxury to decide how working capital should be managed when they are subject to outside macroeconomic forces that affect their stakeholders as well.Practical implicationsThe findings of this study can help managers adopt efficient practices and identify optimal working capital levels. Firms in the MENA region maintain excess reserves of cash, which causes under-investment and inefficient allocation of resources in the economy. Improving working capital management practices can allow firms to regain operational efficiency, enhance financial performance and support economic growth.Originality/valueTo the best of the authors' knowledge, this study investigates this topic in MENA emerging markets and contributes to enriching the existing corporate finance literature in emerging markets.

EARNINGS AND CAPITAL MANAGEMENT THROUGH LOAN LOSS PROVISIONS IN INDONESIAN BANKS AFTER IFRS 9 IMPLEMENTATION

This study aims to examine whether Indonesian banks perform earnings and capital management through loan loss provisions and whether IFRS 9 implementation improves accounting quality by focussing on those practices. The analysis is conducted with a sample of 28 banks in Indonesia selected from the Indonesian Stock Exchange from 2012 – 2021. This study adopts a model modified from previous studies (Ahmed et al. 1999; Anandarajan et al. 2003; Anandarajan et al. 2006; Leventis et al. 2011). Using the model, this study finds that Indonesian banks perform earnings management but do not perform capital management through loan loss provisions. Although IFRS 9 implementation increases loan loss provisions, it does not affect earnings and capital management practices.

How did the SMEs weather the storm: An empirical inquiry into the working capital management during the times of external shock

ABSTRACT Managing working capital is an all-time crucial managerial decision that has a direct impact on the financial performance of all businesses irrespective of size and regardless of economic condition. However, the management of operational capital during times of economic disruptions has received meager scholarly attention. Hence, the current study has tried to explore the working capital management practice followed by small and medium-sized enterprises (SMEs) in India during the COVID-19 pandemic period. The study followed a qualitative methodology and interviewed 18 SME owners from India and found that the changes happened among the working capital components during that period. The study results revealed that the behavioral pattern of creditors matured and the bargaining power that exists in the supply chain system has shifted from the corporate buyer to the supplier. The study result pointed out that it is highly advisable for SME owners to adopt a balanced approach toward working capital policy during times of vexation rather than moving toward a conservative or aggressive approach. In addition, practical implications and directions for future research attempts are also discussed.

What Determines the Efficiency of Working Capital Among Rajasthan MSMEs?

Purpose : This research aimed to gather insights into working capital management (WCM) practices and the factors that influence its efficiency inside the Indian MSMEs’ manufacturing sector using organization variables. Methodology : For the research, the paper used panel regression methodologies on 147 MSMEs of the most critical production and manufacturing industries from 2012–2021. Findings : Several firm-specific variables, including leverage, tangibility, firm size, profitability, human capital, asset turnover ratio, and firm growth, were found to have a significant effect on working capital management efficiency (WCE); whereas, the age of the firm and salary expenses were found to have an insignificant impact on working capital management efficiency. Practical Implications : The study results will facilitate stakeholders to make informed decisions for maintaining the liquidity scenario of the MSMEs by identifying the factors most important for small businesses in Rajasthan. The state can also frame policies concerning the management of the short-term financial position of small businesses. Originality : Unlike prior research on working capital, the current work explores WCM efficiency comprehensively by including organization factors in Rajasthan manufacturing MSMEs by utilizing two efficiency metrics, that is, the cash conversion cycle (CCC) and cash conversion efficiency (CCE), which have not been studied earlier, especially in the context of Rajasthan.

WORKING CAPITAL MANAGEMENT OF HINDUSTAN UNILEVER LIMITED

This project aims to analyze the working capital management practices of Hindustan Unilever Limited, and identify opportunities for improvement. The project will involve an in-depth analysis of the company's financial statements, cash flow projections, inventory management, and accounts receivable processes. The results of the analysis will be used to develop a comprehensive working capital management strategy that focuses on optimizing cash flow and reducing working capital requirements. The project will also involve the implementation of best practices in working capital management and the development of a monitoring system to track progress. Ultimately, the project aims to improve the company's financial health, increase profitability, and enhance shareholder value

The Impact of Working Capital Management on Financial Performance, Evidence from Automotive & Components Industry

This study aims to examine and analyze the impact of Working Capital Management by measuring the Days Inventory Oustanding (DIO), Days Sales Outstanding (DSO), and Days Payable Oustanding (DPO) on Return on Assets (ROA) in automotive and component sub-sector firms listed on the IDX from 2011 to 2021. The sampling technique employed was a purposive sample of 11 businesses with 121 observations for 2011-2021 in the IDX-listed automotive and component sub-sectors. Panel data regression using the Common Effect Model is the method of analysis used. The results of this study reveal that the DIO and DPO have a significant negative effect on ROA, whereas the DSO has a positive effect. It is recommended that, while formulating optimal capital budgeting practices, businesses consider Working Capital Management. This paper's findings may help firm managers optimize their working capital management practices. The study's identification of working capital management as a substantial influence on firm profitability can interest policymakers.

Herding Trend in Working Capital Management Practices: Evidence from the Non-Financial Sector of Pakistan

Working capital management requires careful attention from corporate managers because it plays an important role in corporate stability. The social belongingness of managers induced them to learn from their society, colleagues, and overall industrial movement. They also learn from their peers that have more strategic efficiency. In line with these arguments, the objective of the current study is to explore the peer influence on corporate working capital management practices. For regression analysis, we utilized ten years of data (2009–2018) of non-financial publicly listed firms at PSX (Pakistan Stock Exchange). We used the cash conversion cycle (CCC) as a proxy variable to measure working capital management (WCM). We employed panel fixed effect and system GMM (generalized method of moments) models to estimate regression between the variables of the study. The empirical findings suggest the significant impact of peer WCM on corporate WCM. They also suggest the significant impact of other variables that determine the WCM. This study recommends social learning policy for corporate managers. They can learn from their peers to manage the working capital. Most previous studies discuss peer influence on investment decisions, corporate cash holding, financing policy, etc., but no study explores such a relationship specifically in the case of Pakistan.

Liquidity and Working Capital Management Practices on Firm Value of Listed Non-Financial Companies in Nigeria

The value of a firm, often represented by its market capitalization, reflects the market’s perception of its future earnings potential, growth prospects, risk profile, and overall financial health. Conversely, poor financial management practices can expose firms to increased risks, reduced profitability, and potential value erosion. This study examined the relationship between liquidity and working capital management practices and the value of listed non-financial companies in Nigeria. To achieve these objectives, ex- post facto research design was employed and the study utilized seventy (70) selected listed non-financial firms that had consistently published their audited annual financial reports from 2011 to 2022, and analyzed the data using panel multiple regression technique with the help of E- view statistical tools. The result of the study revealed that liquidity management practices had negative and insignificant effect on firm value of listed non-financial firms in Nigeria. While working capital management practices had positive and significant effect on price to book value of listed non-financial firms in Nigeria. Based on this finding, it is recommended that the management of non-financial companies in Nigeria should improve on working capital management to balance operational needs with cost considerations and also avoid overstocking or under stocking, which can tie up resources or disrupt operations.

Effect of Working Capital Management Practices on the Performance of Listed Nigerian Pharmaceutical Companies.

This study investigated the effect of working capital management practices on the performance of listed Nigerian pharmaceutical companies. Specifically, it examined the effect of working capital management components on Cash Flow Return on Investment. . Secondary data were extracted from audited annual reports and accounts of five selected pharmaceutical companies listed on the Nigerian Exchange Group (NGX) using judgmental sampling technique. Panel data regression was used to analyze the data collected over ten years period (2009-2019). Results of Panel Regression revealed that RTD (β=-1.44583,t=-2.69,p=0.007) and DR (β =-0.1275989,t=-3.40,p=0.001) have negative and significance effects on CFROI which implies that 1% increase in Receivable Turnovers in Days decreases Cash flow Returns on Investment by 1.44% and 1% increase in Debt Ratio decreases Cash flow Returns on Investment by 0.127%. The study therefore concluded that a significant and negative relationship existed between RTD, DR and Cash flow Returns on Investment of listed pharmaceutical companies in Nigeria. This study, therefore, recommended that Managers of pharmaceutical companies should maintain optimal level of stocks, decreases number of days receivables and depends on internal sources of fund than external sources in other to maximize cash flow returns on investment of pharmaceutical companies.

The Systematic Literature Review: An overview on Working Capital Management and Profitability

This systematic review examines the relationship between working capital management (WCM) and profitability, with a focus on the impact of cash conversion cycle (CCC) on profitability. Out of the 53 independent studies analyzed, only those that used CCC as a measure for WCM were selected for analysis. The review found that efficient WCM, specifically the optimal level of CCC, has a significant impact on profitability. Firms should review their receivables and payable policy to maintain market value, shareholders' wealth, and minimize the risk of bankruptcy. Accelerating cash collections through proper management, effective policies, and corporate strategies also improves profitability. The study highlights CCC as a powerful tool for firms to manage their working capital efficiently. The review suggests that firms should maintain an optimal CCC level and effective management practices to improve WCM and profitability. Further research using qualitative research methods is needed to gain a deeper understanding of WCM practices.

Financial management practices and performance of agricultural small and medium enterprises in Tanzania

Small and Medium-Sized Enterprises in agriculture sector, contribute significantly to economic change in developing countries by addressing a wide range of unemployment, nutrition, income poverty, and food security issues. Despite their critical role and contribution to economic growth, they have received a great deal of criticism for their poor performance. Most of the challenges confronting these agro-enterprises, however, are the result of poor financial management practices. Previous research studies have indicated generally that financial management practices have an impact on the performance and success for small businesses, yet scholarly research shows there is limited empirical evidence on which financial management practices have an influence on the agri-SMEs performance, which is why it was critical to examine this phenomenon. A total of 427 SMEs in Tanzania's agricultural sector were surveyed and examined. The developed hypotheses were evaluated using Structural Equation Modeling (SEM) with Smart PLS 4 to determine the effect of implementing financial management practices on the performance of agri-SME. Findings from the empirical study shows that working capital management practices and financing management practices have significant positive influence on both financial and organizational performance of the surveyed agro enterprises, while the accounting, financial reporting practices and capital budgeting management practices have insignificant influence on the performance agri-SMEs performance. Based on the findings, the study recommends that the government and regulatory authorities such as the Small Industries Development Organization (SIDO) must continue to emphasize their policies for improved agri-SME performance and sustainability while directly or indirectly encourage managers (venture owners) to consider working capital and financing practices as core to their financial management strategies.

УПРАВЛЕНИЕ ЧЕЛОВЕЧЕСКИМ КАПИТАЛОМ В УСЛОВИЯХ НОВОГО ТЕХНОЛОГИЧЕСКОГО УКЛАДА ИНДУСТРИИ 4.0

The task of the research is to analyze the trends in changes in human capital management practices in the context of the spread of the new technological structure of Industry 4.0. The concept of Industry 4.0 implies large-scale digitalization of the industrial and service sectors of the economy. At the same time, employees with the necessary skills should work in new digital enterprises. These skills include digital skills, professional skills and various personal skills. In the context of a massive shortage of relevant skills, directions for developing the necessary skills in employees at the scale of the national economy should be formed. The increment of scientific knowledge in the conducted research is to categorize the skills that workers need in the context of Industry 4.0 and to identify the directions for forming these skills. Further research in the framework of the mentioned problems can be aimed at identifying new skills with the help of various tools and assessing the effectiveness of different formats of skill formation in workers.

The Impact of Financial Management Practices on Financial Performance of Small and Medium Plantation Companies in the Kalutara District, Sri Lanka

Small and Medium Enterprises (SMEs) are critical to the economy. SMEs exist in every sector of the economy. The plantation sector is a landmark cable manufacturing industry in the economy of Sri Lanka. The plantation sector presently has more business ventures with SMEs. Therefore, the purpose of this research is to examine the impact of financial management practices on the financial performance of SMEs in the plantation sector. This study considered financial management practices as the independent variable and the financial performance of SMEs as the dependent variable. The data for this study was collected using a questionnaire that was distributed to 40 SMEs in the plantation sector in the Kalutara district using a purposive convenience sampling method. The data was analyzed by using correlation analysis and regression analysis. According to the correlation analysis, the findings revealed that all variables were positively correlated with financial performance. Further, the regression analysis indicated that working capital management practices, capital structure, management practices, and financial reporting and analysis practices significantly affected financial performance. The quality of financial performance through employing financial management practices (FMPs) in plantation sector SMEs would be crucial for proprietors, managers, executives, employees, and other interested parties who can reasonably practice utilizing organizational resources for optimal financial performance. This study continues the discussion on numerous practical suggestions and provides directions for future research.

Effect of Human Capital Management Practices on Employee Retention in Large Manufacturing Companies in Kenya

Employee retention is vital as it brings implications for organizational competitiveness in an increasingly global landscape. Retaining key employee is a vital source of competitive advantage for any organization. The general objective of this study was to establish the effect of human capital management practices on employee retention in manufacturing companies in Kenya. The study specific objectives was to determine the influence recruitment on employee retention, training, job design and compensation on employee retention in manufacturing companies in Kenya. The theories informing the study were Resource-based theory and Job characteristics theory. The population was 181 large manufacturing firms and the sample size of 124. A Human Resource Manager was purposively selected from each of the 124 manufacturing firms. The study adopted a descriptive research design. Primary data was collected using questionnaire. The data was analyzed using descriptive and inferential statistics. A regression model was used to test the effect of human capital management practices on employee retention performance of manufacturing firms. The results indicated that recruitment and employee retention is positively and significantly related. The results further indicated that training and employee retention is positively and significantly related. The results further indicated that job design and employee retention is positively and significantly related. Lastly, results showed that compensation and employee retention is positively and significantly related. The study concluded that human capital management practices on employee retention in large manufacturing companies in Kenya. The study recommends that HR managers should endeavor that their recruitment, selection and retention process always focuses businesses objectives. The study recommends that HR managers should design specific training programmes that target this group of employee with the aim of enhancing their readiness in taking up tasks and accepting changes in the sector. Remuneration of employees who have upgraded should be reviewed according to human resources policy Keywords: Recruitment, Training, Job Design, Compensation &Employee Retention

Examining the Relationship between Aspects of Human Capital Management and Employee Job Performance: Mediating Role of Employee Engagement and Moderating Role of Perceived Organizational Support

This paper examined the effect of the selected aspects of human capital management on employee job performance and the mediating role of employee engagement. Likewise, this study tested the moderation role of perceived organizational support on the HCM-employee performance link. The research sample is the responses of 426 participants from twelve banking organizations operating in Addis Ababa, Ethiopia, utilizing the social exchange theory and the theory of the resource-based view. This paper is structured quantitatively, with stratified and simple random sampling techniques. The research model analysis method applies structural equation modeling with AMOS to test the hypothesized relationships. The results showed that the Human Capital Management (HCM) practices, namely knowledge accessibility, learning capacity, workforce optimization, leadership practice, and career advancement, positively related to employee job performance. Moreover, the bias-corrected bootstrapping iteration revealed that employee engagement partially mediates this relationship between aspects of human capital management and employee job performance. The findings also show that perceived organizational support positively moderates the association between knowledge accessibility, learning capacity, leadership practice, career advancement, and employee job performance. Conversely, it has an insignificant moderation effect on the association between workforce optimization and employee job performance. Finally, the limitations and future research implications are discussed.

DETERMINANTS OF CORPORATE GROWTH: EMPIRICAL INVESTIGATION OF THE SOUTHEAST EUROPEAN COMPANIES

The growth of companies is always a current and challenging topic for corporate managers who tend to maximize growth. In order for companies to grow they need to undertake investment projects with a positive NPV that will increase production capacity, output and sales. But, on the other hand, the financing of new assets should be in a way that will not deplete financial resources and will enable sustainable growth. In this paper, we investigate the internal company-specific determinants of corporate growth in Southeast Europe on a sample of 791 companies. We found that SEE companies achieved moderate annual growth of 6.73% per year. This is primarily and mostly due to the small volume of capital investments, which in turn is a result of poor operating performance and low profitability. Retained earnings are the primary internal source of investment financing along with additional borrowing for these companies that have no other financing opportunities available, operating in underdeveloped financial market. The growth of the companies in SEE is positively affected by capital investments, financial leverage, operating cash flow, ROA, ROE, firm’s size, net profit margin and assets turnover. The growth of the companies in SEE is negatively affected by non-debt tax shield, tangibility, account receivable collection period, inventory conversion period and cash conversion cycle. Companies in SEE need to improve working capital management practices, to increase its effectiveness and efficiency, in order to generate greater profitability and consequently greater company growth.

Working Capital Management Practices and Financial Performance in Kenya

Gross working capital and net working capital are the two components that can be used to establish the working capital concept. Between current liabilities and current assets, there is a difference called net working capital. Accounts receivable, cash, and inventory are examples of current assets because they are easily convertible into cash; on the other hand, current liabilities are those that are owed to the company right away, such as accounts payable, bills payable, and other financial instruments. Thispaper appraises the interactions between working capital management in terms of cash, inventories, receivables, and payables management in relation to financial performance. The study also highlights two theories relating to working capital management: the liquidity preference theory and the cash conversion cycle. The study concludes that different working capital components have varying effects on the financial performance of manufacturing enterprises. Some studies reveal a favorable association between the components of working capital, whereas others reveal a detrimental relationship.

Working Capital Management Practices and Financial Performance in Kenya

Working Capital Management Practices and Financial Performance in Kenya

Working capital management of IPO firms

PurposeFinancial constraints limit firms' ability to invest in working capital, which results in opportunity costs from lost sales or stockouts. The author examines initial public offering (IPO) firms' working capital management and build on the idea that newly listed firms experience a liquidity shock that allows them to invest more in working capital.Design/methodology/approachThe empirical results are based on a sample of European IPO firms matched with comparable non-IPO firms; the author uses the generalized method of moments panel-data regressions to test the hypotheses.FindingsThe author observes that IPO firms increase their inventories-on-sales ratio, accounts receivable-on-sales ratio and operating working capital after the IPOs, which is consistent with the idea that going public relaxes financial constraints and allows firms to adopt more conservative working capital management practices. The observed results are stronger for smaller firms and zero-debt firms, which are the most financially constrained firms.Originality/valueThe study shows that working capital requirements can be financed via equity and not only via debt, and can even motivate the decision to go public for financially constrained firms.

Knowledge management practices and sustainability reporting: the mediating role of intellectual capital

PurposeThis study's aim is twofold: First, to establish the relationship between intellectual capital, knowledge management practices and sustainability reporting practices; second, to examine the mediating role of intellectual capital in the relationship between knowledge management practices and sustainability reporting practices.Design/methodology/approachThis study is cross-sectional and uses a questionnaire survey of accountants in the financial services firms in Uganda. The data were analyzed using Statistical Package for Social Sciences and MediGraph program (Excel version).FindingsResults indicate that intellectual capital and knowledge management practices are significantly related to the sustainability reporting practices among financial services firms in Uganda. Also, intellectual capital mediates the relationship between knowledge management practices and sustainability reporting practices.Originality/valueUsing perceptions, this study demonstrates how internal resources and capabilities can promote sustainability reporting in financial services firms in developing countries. Specifically, this study provides first time evidence on the mediating role of intellectual capital in the relationship between knowledge management practices and sustainability reporting practices.