Tying the knot – linking bootstrapping and working capital management in established enterprises

Margaret Fitzsimons, Teresa Hogan and Michael Thomas Hayden

Journal of Applied Accounting Research, 2023, vol. 26, issue 6, 183-204

Abstract: Purpose - Bootstrapping is a practitioner-based term adopted in entrepreneurship to describe the techniques employed in micro, small and medium-sized enterprises (MSMEs) to minimise the need for external funding by securing resources at little or no cost and applying strategies to effectively use resources. Working capital management (WCM) is a term used in financial management to define a set of practices used to manage business resources, including cash management. This paper explores the overlap and divergence between these two disciplinary distinct concepts. Design/methodology/approach - A dual methodology is employed. First, the usage of the two terms in prior literature is analysed and synthesised. Second, the study uses factor analysis to explore how bootstrapping practices described by owners of 167 established MSMEs relate to the components of WCM in financial management. Findings - The factor analysis identifies two main bootstrapping practices employed by MSMEs: (1) delaying payments and owner-related bootstrapping and (2) customer-related bootstrapping. Delaying payments is an integral practice in trade payables management and customer-related bootstrapping includes practices that are integral to trade receivables management. Therefore, links between bootstrapping practices and WCM practices are firmly established. Research limitations/implications - The study is not without limitations. Based on cross-sectional evidence for established firms in Ireland only, future studies could explore cross-country longitudinal panel data to fully examine life cycle and sectoral effects, as well as other external shocks (for example, COVID-19) on bootstrapping and WCM practices. This study does not explain why some factors (for example, joint utilisation and inventory management) are present in some bootstrapping studies and not in others; further case study research might help explain this. Finally, changes in the business environment facing start-ups and established enterprise, including increased digitalisation, online trading, self-employment, remote hub working and sustainability, offer new avenues for bootstrapping research. Originality/value - This is the first study to comprehensively explore the conceptual and empirical links between bootstrapping and WCM. This study will enable researchers and practitioners in these two distinct disciplines to learn from each other. Accounting researchers and practitioners can broaden their understanding of how WCM “works” in MSME settings. Similarly, entrepreneurship researchers and practitioners can deepen their understanding of how bootstrapping can be adopted by businesses to manage resources effectively.

Keywords: Bootstrap finance; Bootstrapping; Working capital management; Financial management (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaarpp:jaar-03-2023-0078

DOI: 10.1108/JAAR-03-2023-0078

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