Working capital management efficiency, managerial ability, and firm performance: new insights

Pradip Banerjee and Soumya Guha Deb

Applied Economics, 2024, vol. 56, issue 33, 4001-4018

Abstract: This paper studies the association of managerial ability (MA) with efficiency in working-capital management (WCM) of firms. Using a large sample of 1,14,173 firm-year observations between 1988 and 2018 in the US, we show a negative contemporaneous relationship between MA and efficiency of WCM, indicating that more able managers manifest higher WCM efficiency and thereby affect firm performance positively through a mediating channel of WCM. Further, we show that this association is non-linear in nature with managers focusing more on long-term value-enhancing projects for the firm beyond a threshold MA level, having already attained the optimal efficiency in WCM. The results remain robust after a series of robustness tests.

Date: 2024
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DOI: 10.1080/00036846.2023.2208857

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