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Working Capital Management, Cash Flow and SMEs’ Performance

Godfred Afrifa and Ishmael Tingbani

MPRA Paper from University Library of Munich, Germany

Abstract: Purpose – The paper presents comprehensive evidence on the relationship between Working Capital Management (WCM) and SMEs’ performance by taking into consideration the plausible effect of cash flow. Design/methodology/approach – The paper adopts a panel data regression analysis on a sample of 802 British quoted small and medium enterprises listed on the Alternative Investment Market for the period from 2004 to 2013. Findings – The results of the study demonstrate the importance of cash flow on SMEs’ WCM and performance. According to our findings, WCM has a significantly negative impact on SME performance. However, with available cash flow, we find a significantly positive relationship. Additionally, our evidence revels that cash flow constrained (non-constrained) SMEs are able to enhance their performance through decreased (increased) investment in WCM. Practical implications – Overall, the results demonstrate the importance of cash flow availability on SMEs’ working capital needs. Our findings suggest that in an event of cash flow unavailability (availability) managers should strive to reduce (increase) the investment in working capital in order to improve performance. Originality/value – This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.

Keywords: Working Capital Management; Performance; SMEs; Cash Flow (search for similar items in EconPapers)
JEL-codes: G3 G31 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-knm and nep-sbm
Date: 2017, Revised 2017-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

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