Articlediamond2020

Working capital and financial performance in MENA region

38 citations0/0 files storedJournal of Humanities and Applied Social Sciences

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Working Capital and Financial Performance Financial Analysis and Corporate Governance Supply Chain and Inventory Management

Abstract

Purpose This paper aims to investigate the possible non-linear effect of net working capital (NWC) level on profitability for Middle East and North Africa (MENA) region listed companies. Furthermore, the study tests the possible interactive effect of cash levels on the relationship between NWC and profitability. Design/methodology/approach NWC level is the independent variable and profitability is the dependent variable using two proxies, return on assets (ROA) and returns on equity (ROE). Control variables are size, leverage, gross domestic product growth and sales revenue growth. The generalized method of moments was used to analyze the data of 134 consumer-goods listed firms in 12 MENA countries for the period 2013–2019. Findings The results demonstrate that NWC levels had a non-linear effect on profitability using ROA as a profitability proxy while results were insignificant using ROE as a profitability proxy. Furthermore, results show the absence of interactive effects between NWC, cash levels and both profitability proxies. Originality/value The study fills a gap in the working capital management (WCM) literature by providing new evidence on WCM’s non-linear effect of corporate performance in the MENA region emerging markets using the consumer-goods industry sample. The study contributes to the financial managers’ working capital optimization efforts in the MENA region by providing evidence on the usefulness of WC optimization efforts in the region from a financial performance point of view. According to the researchers’ knowledge, a few studies attempted to investigate this non-linear relationship for neither MENA region countries nor the consumer-goods industry.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1999The determinants and implications of corporate cash holdings 2009Why Do U.S. Firms Hold So Much More Cash than They Used To?1999Understanding the determinants of managerial ownership and the link between ownership and performance 2003Does Working Capital Management Affect Profitability of Belgian Firms?2014Explaining Fixed Effects: Random Effects Modeling of Time-Series Cross-Sectional and Panel Data

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