 Role of the legal and financial environments in determining the efficiency of working capital management in European SMEsMarkus Mättö and Mervi Niskanen International Journal of Finance & Economics, 2021, vol. 26, issue 4, 5197-5216 Abstract: This paper focuses on whether the rule of law or capital market development can explain observed differences in working capital levels and trade credit in SMEs from 13 EU countries. Our findings indicate that the working capital levels are lower and working capital management is thus more efficient in countries with safer legal systems and better investor protection. We also find that operating in a market‐based capital system has a negative effect on the cash conversion cycle (CCC). This implies that firms operating in countries with a market‐based system as opposed to a bank‐based system have better opportunities to manage their working capital. Our findings indicate that country‐level legal instruments explain much of the cross‐country differences observed in working capital. The results also suggest that working capital practices and the extent to which trade credit is used are a product of the legal system and the financial systems in place in each country. If the financial system changes, the trade credit practices can also be expected to change. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:26:y:2021:i:4:p:5197-5216 Ordering information: This journal article can be ordered from Access Statistics for this article International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.