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Working capital management and financial performance of UK listed firms: a contingency approach

Working capital management and financial performance of UK listed firms: a contingency approach
Working capital management and financial performance of UK listed firms: a contingency approach
Existing empirical research findings generally suggest that working capital management (WCM) affects and the firms’ financial performance. This paper adopts contingency theory framework to investigate how the relationship between WCM and financial performance is affected by the firms’ environment, resources and management capability. Our sample consist of an unbalanced panel of 802 firms listed on the London Stock Exchange (LSE) from 2004 to 2014 on which a dynamic panel data analysis was performed using a series of interactive models to estimate the relationship. The findings suggest that the impact of WCM on financial performance changes to reflect number contingency variables such as environmental, resources and management capabilities of the firm. These findings are significant because they demonstrate for the first time how the firms’ ability to enhance performance through investment in working capital is influenced by contingent factors such as environmental, resource and management capabilities of the firm. Our results are also important as they show that contingency theory helps to provide an understanding on the conditions under which investment in working capital can be an effective tool in enhancing financial performance and the relevant contingencies.
Contingency approach, Financial performance, Interactive models, Wcm, Working capital management
173-201
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Damoah, Isaac
24e93686-945a-4459-aae9-0cc0fd7483bc
Sha'ven, Widin
971403a4-399f-4f93-ae6d-1e8a0b7522c3
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Damoah, Isaac
24e93686-945a-4459-aae9-0cc0fd7483bc
Sha'ven, Widin
971403a4-399f-4f93-ae6d-1e8a0b7522c3

Tingbani, Ishmael, Tauringana, Venancio, Damoah, Isaac and Sha'ven, Widin (2020) Working capital management and financial performance of UK listed firms: a contingency approach. International Journal of Banking, Accounting and Finance, 11 (2), 173-201. (doi:10.1504/IJBAAF.2020.106708).

Record type: Article

Abstract

Existing empirical research findings generally suggest that working capital management (WCM) affects and the firms’ financial performance. This paper adopts contingency theory framework to investigate how the relationship between WCM and financial performance is affected by the firms’ environment, resources and management capability. Our sample consist of an unbalanced panel of 802 firms listed on the London Stock Exchange (LSE) from 2004 to 2014 on which a dynamic panel data analysis was performed using a series of interactive models to estimate the relationship. The findings suggest that the impact of WCM on financial performance changes to reflect number contingency variables such as environmental, resources and management capabilities of the firm. These findings are significant because they demonstrate for the first time how the firms’ ability to enhance performance through investment in working capital is influenced by contingent factors such as environmental, resource and management capabilities of the firm. Our results are also important as they show that contingency theory helps to provide an understanding on the conditions under which investment in working capital can be an effective tool in enhancing financial performance and the relevant contingencies.

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Accepted/In Press date: 12 July 2018
e-pub ahead of print date: 31 March 2020
Published date: 12 April 2020
Keywords: Contingency approach, Financial performance, Interactive models, Wcm, Working capital management

Identifiers

Local EPrints ID: 422537
URI: http://eprints.soton.ac.uk/id/eprint/422537
PURE UUID: 8a72b29d-0767-43b7-80a2-f80c8d2f5e96
ORCID for Ishmael Tingbani: ORCID iD orcid.org/0000-0002-4012-1224
ORCID for Venancio Tauringana: ORCID iD orcid.org/0000-0002-1433-324X

Catalogue record

Date deposited: 25 Jul 2018 16:30
Last modified: 26 Nov 2021 06:08

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Contributors

Author: Isaac Damoah
Author: Widin Sha'ven

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