Net working capital, cash flow and performance of UK SMEs

Journal article


Afrifa, G. 2016. Net working capital, cash flow and performance of UK SMEs. Review of Accounting and Finance. 15 (1), pp. 21-44. https://doi.org/10.1108/RAF-02-2015-0031
AuthorsAfrifa, G.
Abstract

This paper examines the influence of cash flow on the relationship between net working capital and firm performance. The paper employs unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the United Kingdom for the period from 2004 to 2013. The results indicate a strong concave relationship between net working capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in working capital but firms with cash flow above the sample median have higher investment in working capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in working capital, so as to improve performance. Overall, the results suggest that whilst firms with limited cash flow should strive to reduce investment in working capital, firms with available cash flow should increase investment in working capital in order to improve performance. This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.

Key words: Net working capital, performance, SMEs, cash Flow

Year2016
JournalReview of Accounting and Finance
Journal citation15 (1), pp. 21-44
PublisherEmerald
ISSN1475-7702
Digital Object Identifier (DOI)https://doi.org/10.1108/RAF-02-2015-0031
Publication dates
Print01 Jan 2016
Publication process dates
Deposited11 Jan 2017
Accepted11 Aug 2015
Accepted author manuscript
Output statusPublished
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https://repository.canterbury.ac.uk/item/88039/net-working-capital-cash-flow-and-performance-of-uk-smes

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