The Interplay between Working Capital Management and a Firm’s Financial Performance across the Corporate Life Cycle

Zanxin Wang, Minhas Akbar and Ahsan Akbar
Additional contact information
Zanxin Wang: School of Development Studies, Yunnan University, Kunming 650091, China
Minhas Akbar: Department of Management Sciences, COMSATS University Islamabad (Sahiwal Campus), Sahiwal 57000, Pakistan
Ahsan Akbar: International Business School, Guangzhou College of South China University of Technology, Guangzhou 510080, China

Sustainability, 2020, vol. 12, issue 4, 1-16

Abstract: The purpose of this study is to examine the impact of working capital management (WCM) and working capital strategy (WCS) on firm’s financial performance across different stages of the corporate life cycle (CLC). We use Pakistani non-financial listed firms nested in 12 diverse industries over a period of 2005–2014 as the research sample and employ the hierarchical linear mixed (HLM) estimator, which can process multilevel data where observations are not completely independent. The empirical findings reveal that, overall, WCM is negatively associated with firm performance. However, this association is not static across different stages of a firm’s life cycle. For example, a negative association is more pronounced at the introduction stage followed by growth and decline stages, whereas WCM does not significantly impact the performance of mature firms. Likewise, WCS also causes varying effects on the financial performance across the CLC. A conservative strategy at the introduction, growth, and decline stages negatively affects firm performance, suggesting that these firms should adopt an aggressive strategy. Nevertheless, management of sample firms did not account for the respective life cycle stage while formulating a WCM strategy, which can seriously compromise their financial sustainability. These findings suggest that firms require customized WCM policies and WCS to attain sustainable financial performance at each stage of firm life cycle. Thus, managers should not overlook the significant role of CLC stages in their financial planning to ensure the sustainable functioning of the enterprise.

Keywords: working capital management; working capital strategy; corporate life cycle; sustainable firm performance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.mdpi.com/2071-1050/12/4/1661/pdf (application/pdf)
https://www.mdpi.com/2071-1050/12/4/1661/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:4:p:1661-:d:324093

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().