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Working capital management, cash flow and SMEs' performance

Working capital management, cash flow and SMEs' performance
Working capital management, cash flow and SMEs' performance

The paper presents comprehensive evidence on the relationship between working capital management (WCM) and SMEs' performance by taking into consideration of the plausible effect of cash flow. 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. 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 the available cash flow, we find a significantly positive relationship. Additionally, our evidence revels that the cash flow constrained (non-constrained) SMEs are able to enhance their performance through decreased (increased) investment in WCM. 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 the improve performance. This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.

Cash flow, Performance, Small and medium enterprises, SMEs, WCM, Working capital management
1755-3830
19-43
Afrifa, Godfred Adjapong
956c7235-c03d-46cf-83d2-f08392aa3ba2
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Afrifa, Godfred Adjapong
956c7235-c03d-46cf-83d2-f08392aa3ba2
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca

Afrifa, Godfred Adjapong and Tingbani, Ishmael (2018) Working capital management, cash flow and SMEs' performance. International Journal of Banking, Accounting and Finance, 9 (1), 19-43. (doi:10.1504/IJBAAF.2018.089421).

Record type: Article

Abstract

The paper presents comprehensive evidence on the relationship between working capital management (WCM) and SMEs' performance by taking into consideration of the plausible effect of cash flow. 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. 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 the available cash flow, we find a significantly positive relationship. Additionally, our evidence revels that the cash flow constrained (non-constrained) SMEs are able to enhance their performance through decreased (increased) investment in WCM. 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 the improve performance. This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.

Full text not available from this repository.

More information

Accepted/In Press date: 21 June 2017
e-pub ahead of print date: 17 January 2018
Published date: 2018
Keywords: Cash flow, Performance, Small and medium enterprises, SMEs, WCM, Working capital management

Identifiers

Local EPrints ID: 443841
URI: http://eprints.soton.ac.uk/id/eprint/443841
ISSN: 1755-3830
PURE UUID: 8cc8df67-acbd-4d51-9207-8868081ab987
ORCID for Ishmael Tingbani: ORCID iD orcid.org/0000-0002-4012-1224

Catalogue record

Date deposited: 14 Sep 2020 16:36
Last modified: 07 Oct 2020 02:28

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