Effects of Working Capital Management on Small-Sized Businesses in Competitive Environments with Economic Policy Uncertainty—A Case Study Applied to Chilean Companies

Juan Alejandro Gallegos Mardones (), Hugo Alejandro Moraga-Flores and Vanessa Paulina Briones Soto
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Juan Alejandro Gallegos Mardones: Faculty of Economic and Administrative Sciences, Catholic University of the Most Holy Conception, Concepción 4090541, Chile
Hugo Alejandro Moraga-Flores: Faculty of Economic and Administrative Sciences, University of Concepción, Concepción 4070409, Chile
Vanessa Paulina Briones Soto: Faculty of Economic and Administrative Sciences, Catholic University of the Most Holy Conception, Concepción 4090541, Chile

Sustainability, 2024, vol. 16, issue 21, 1-13

Abstract: Working capital is a strategic resource that not only enhances financial performance but also ensures the long-term sustainability of organizations, especially SMEs. In the context of evolving economic policies and the challenges of gender equity affecting Chilean companies, this study explores how economic policy risk (EPU) and CEO characteristics influence working capital, which are essential investments for sustainable growth. The analysis covers 12,839 SMEs from 2014 to 2019. Using a fixed-effects panel data model, the findings reveal that firms tend to increase their investment in working capital in response to rising economic policy uncertainty. However, the relationship follows a non-linear inverted U-shaped pattern, which suggests the existence of an investment optimum between working capital and the EPU. Considering the level of competition, companies increase their investment in working capital when the level of competition is higher. Regarding the gender and age of CEOs, it is observed that women invest less in working capital, as do young CEOs. These results underscore the importance of EPU, along with the gender and age of CEOs, as key factors in promoting sustainable working capital management.

Keywords: small and medium enterprises (SMEs); working capital management; economic policy uncertainty (EPU); Chile (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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