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Net working capital, cash flow and performance of UK SMEs

Afrifa, G.A. (2016) Net working capital, cash flow and performance of UK SMEs. Review of Accounting and Finance, 15 (1). pp. 21-44. ISSN 1475-7702. (doi:10.1108/RAF-02-2015-0031) (KAR id:66500)

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Abstract

Purpose: - This paper aims to examine the influence of cash flow on the relationship between net working capital and firm performance. Design/methodology/approach - The paper uses unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the UK for the period from 2004 to 2013. Findings: - 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. Practical implications - 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 to improve performance. Originality/value - This current study incorporates the relevance of cash flow in assessing the association between working capital management and firm performance.

Item Type: Article
DOI/Identification number: 10.1108/RAF-02-2015-0031
Uncontrolled keywords: Cash flow, Net working capital, Performance, SMEs
Subjects: H Social Sciences
H Social Sciences > H Social Sciences (General)
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Godfred Afrifa
Date Deposited: 21 Mar 2018 12:43 UTC
Last Modified: 17 Aug 2022 12:22 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/66500 (The current URI for this page, for reference purposes)

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