University of Oulu

Kayani, U.N., Gan, C., Choudhury, T. and Arslan, A. (2023), "Working capital management and firm performance: evidence from emerging African markets", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print.

Working capital management and firm performance : evidence from emerging African markets

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Author: Kayani, Umar Nawaz1; Gan, Christopher2; Choudhury, Tonmoy3;
Organizations: 1College of Business, Al Ain University, Abu Dhabi, United Arab Emirates
2Department of Financial and Business System, Faculty of Agribusiness and Commerce, Lincoln University, Lincoln, New Zealand
3King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia
4Department of Marketing, Management and International Business, Faculty of Economics and Business Administration, Oulu Business School, University of Oulu, Oulu, Finland
Format: article
Version: accepted version
Access: open
Online Access: PDF Full Text (PDF, 0.6 MB)
Persistent link:
Language: English
Published: Emerald, 2023
Publish Date: 2023-08-10


Purpose: The paper aims to investigate the empirical impact of working capital management (WCM) on firm performance (FP) in the emerging markets of Africa. This paper also aims to investigate this relationship during the global financial crisis of 2008 (GFC, 2008).

Design/methodology/approach: The sample of this study comprises two leading emerging markets in Africa (Egypt and South Africa) based on the MSCI world market classification list for the period 2007–2020. The study employs various regression techniques such as fixed effect and system generalized method of moments. In addition to baseline regressions, the authors applied various preliminary tests and, finally robustness measures. Besides the dependent, independent variables, the study uses firm-level and country macroeconomic-level explanatory variables.

Findings: The study’s results indicate that (1) WCM and FP exhibit a direct relationship and (2) the WCM components such as cash conversion cycle, average collection period and the average age of inventory, have a significant inverse relationship, whereas the average payment period has a direct relationship with FP. The robustness results are assessed based on the selection of an alternative proxy for FP measurement, controlling for industry, country, year effect and the exclusion of the GFC 2008.

Practical implications: This study has various implications in terms of theoretical, societal and practical application for practitioners, managers, investors and regulators. In terms of theoretical implications, this is the first study that contributes to the existing body of knowledge in corporate finance and managerial accounting in relation to the examination of this relationship in the African region. Finally, practitioners, including regulators, can benefit from the study’s findings while devising investment policies for investors in the region. More specifically, the financial sector conduct authority (FSCA) in South Africa and the financial regulatory authority (FRA) in Egypt can consider these findings to devise financial policies that aim to foster the FP.

Social implications: Society benefits from the study’s findings too. The efficient management of the WCM components will raise firm profits and investment opportunities for the society in Egypt and South Africa. A firm with good performance levels will increase salaries and will provide compensation to their employees in terms of bonuses. These compensations are one of the sources for achieving FP, which is evident from existing literature as well in the case of corporate governance studies. These compensations have psychological impacts as well. As society has its basic needs and goods, compensation levels will be tilted less toward societal ethical issues.

Originality/value: This study has various distinguishing features, which prior studies mostly lack, as most of these studies are on an individual country dataset, shorter periods, mixed results, lesser explanatory variables and no country-related control variables. The authors addressed all these challenges and provided robust results based on various measurement alternatives for the African markets. The study’s results confirm a direct relationship between WCM and FP for South Africa and Egypt reflecting the emerging markets in Africa.

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Series: International journal of emerging markets
ISSN: 1746-8809
ISSN-E: 1746-8817
ISSN-L: 1746-8809
Volume: Online first
DOI: 10.1108/ijoem-03-2022-0490
Type of Publication: A1 Journal article – refereed
Field of Science: 512 Business and management
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