Global policy uncertainty and working capital management: Does national culture matter?

Augustine Tarkom and Nacasius U. Ujah

Technological Forecasting and Social Change, 2023, vol. 196, issue C

Abstract: We explore the influence of global economic policy uncertainty on firms' working capital decisions and examine the moderating role of national culture, specifically uncertainty avoidance, on this link. Drawing on institutional theory, we contend that firms are influenced by their institutional environment's implicit and explicit traits and examine how policy uncertainty affects working capital allocation. Using a large panel of global firms across sixteen countries with over 150,000 firm-year observations and employing contemporary analytics, we find a positive association between policy uncertainty and working capital days, highlighting the need for proactive financial planning during periods of uncertainties. Our findings reveal that a one-standard-deviation increase in policy uncertainty is associated with an increase in working capital days by an average of seven days. Moreover, we find a significant negative moderating effect of uncertainty avoidance, demonstrating that firms in high uncertainty avoidance societies adopt more conservative working capital management strategies during periods of heightened uncertainty. These findings emphasize the importance of considering institutional and cultural factors when optimizing working capital practices during uncertain times. The effect of policy uncertainty is shown to be persistent. Additional heterogenous evidence through the lens of dividend policy, cash reserves, and firm size are offered.

Keywords: Global economic policy uncertainty; Working capital; Cash conversion cycle; National culture (search for similar items in EconPapers)
JEL-codes: D80 E66 F01 G30 M41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:196:y:2023:i:c:s0040162523005541

DOI: 10.1016/j.techfore.2023.122869

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