The Impact of Firm Risk and the COVID-19 Crisis on Working Capital Management Strategies: Evidence from a Market Affected by Economic Uncertainty

Hossein Tarighi (), Grzegorz Zimon (), Mohammad Javad Sheikh and Mohammad Sayrani
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Hossein Tarighi: Department of Accounting, Attar Institute of Higher Education, Mashhad 9177939579, Iran
Grzegorz Zimon: Department of Finance, Banking, and Accountancy, The Faculty of Management, Rzeszow University of Technology, 35-959 Rzeszow, Poland
Mohammad Javad Sheikh: Faculty of Financial Sciences, Kharazmi University, Tehran 1491115719, Iran
Mohammad Sayrani: Faculty of Industrial Engineering, Management and Accounting, Shahab Danesh University, Qom 3711687764, Iran

Risks, 2024, vol. 12, issue 4, 1-33

Abstract: The present study aims to investigate the impact of the COVID-19 crisis and firm risk on working capital management policies among manufacturing firms listed on the Tehran Stock Exchange (TSE). The study sample consists of 1200 observations and 200 companies listed on the TSE over a six-year period from 2016 to 2021; furthermore, the statistical method used to test the hypotheses is ordinary least squares (OLS). The results show that the COVID-19 pandemic has led managers to increase current assets to total assets ratio (CATAR), current ratio (CR), quick ratio (QR), net working capital (NWC), cash to current assets (CTCA) ratio, while it has caused a decrease in operational cycle (OC), days account receivables (DAR), and current liabilities to total assets ratio (CLTAR). Furthermore, we find that the higher the company’s risk, the more managers are motivated to embrace the working capital investment policy, net working capital, cash to current assets ratio, and cash conversion efficiency (CCE). In general, our findings indicate that during times of crisis, Iranian companies tend to adopt conservative working capital policies to ensure sufficient liquidity to respond appropriately to unforeseen events. In this study, the theory of liquidity preference aligns with the observed behavior of firms in response to the COVID-19 crisis and firm risk, where the emphasis on liquidity and short-term financial stability becomes paramount.

Keywords: COVID-19 crisis; firm risk; working capital management; WC conservative policy; WC aggressive policy; Tehran Stock Exchange (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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