Net working capital, cash flow and performance of UK SMEs
- 8 February 2016
- journal article
- research article
- Published by Emerald in Review of Accounting and Finance
- Vol. 15 (1), 21-44
- https://doi.org/10.1108/raf-02-2015-0031
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 limite...Keywords
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