Introduction
Working capital management forms the core of the operational framework in any firm. It is not financial, where liquidity and cash flows are central to the operational requirements (Afiezan, Wijaya and Claudia, 2020). Working capital is the short-term assets and liabilities, including inventories and receivables/payables, that fund its running of day-to-day operations. Effective working capital management powers the firm’s continued operational efficiency and ability to meet short-term liability (Antczak, Horzela and Nowakowska-Krystman, 2021). Most importantly, through these times, there came periods when economic instability created pressure on liquidity that might be a harbinger of the firm’s fall. This, therefore, emphasises the importance of WCM in making companies or organisations more resilient in economic turmoil, as seen during this COVID-19 pandemic (Simon et al., 2021).
The latter half of the year saw the rise and global spread of the COVID-19 pandemic, with far-reaching consequences for businesses in the UK. Other than these, the disruptions experienced in the supply chains and changes in consumer behaviour, the most outstanding thing that happened at the onset of COVID-19 was a shake-up and massive financial volatility in the business environment (Delardas et al., 2022). This made working capital optimisation a financial strategy imperative for any chance of survival during the COVID-19 period. In return, agility in managing cash flows, inventories, and receivables had to fit these economic shocks (Choi et al., 2023).
In this case, the UK, considering that large portions of the Economy are, in most practices, associated with Small and Medium Enterprises (SMEs), few other scenarios are much worse. According to Erdin and Ozkaya (2020), Such entities are those likely not to have vast pools of cash to survive the continuous stress and, for most of them, to bank the government support schemes like the Coronavirus Business Interruption Loan Scheme (CBIL) designed for SMEs and the Bounce Back Loans Scheme (BBLS). For a more prominent and complex firm, the issue was not how to manage liquidity but how to redesign the operational model to fit these altered market conditions staircases.
The above research gives insight into WCM in UK non-financial firms amid COVID-19 and how they manoeuvred their patterns in a global disaster. Thus, it is essential to understand how companies’ responses to working capital management could change financial strategies in the long run when companies adapt to the new normal. In line with this background, this study tries to develop an integrated perspective concerning operational resilience in firms and provide insight into how the practices of WCM lead to firm performance during a crisis.
This is bound to be helpful knowledge for stakeholders such as managers, investors, and, not least, policymakers, who must find their guidelines in future crises. In this way, the results of this study may be helpful as a reference in drawing future sound financial practices capable of repressing such economic earthquakes in case of a shock. This, hence, offers a current analysis of strategic financial decisions under one of the most turbulent periods of recent economic history.
Aims and Objectives:
The primary aim of this research is to analyse how working capital management has impacted the performance of non-financial firms in the UK during the COVID-19 period. Specific objectives will include:
- To evaluate the WCM strategies adopted by non-financial firms during the pandemic.
- To assess the correlation between WCM components and firm performance metrics.
- To compare WCM performance pre- and post-COVID-19 outbreak.
- To provide insights for policymakers and business managers on effective WCM amidst a global crisis.
Research Context: (Literature Review)
The efficient management of working capital is central to the health of any business. Before the COVID-19 pandemic, the research on working capital management (WCM) and its impact on firm performance was already well-established. Several scholars have evidenced a close association between WCM and the profitability or liquidity of the firm (Erdin and Ozkaya, 2020). Underlying the above theory is the explanation that firms reduce the cash conversion cycle, hence unlocking resources from the reduction for investment or distribution to shareholders, and hence adding value.
However, that was not the case; the arrival of the COVID-19 pandemic made its debut very dramatically, Yousaf, Bris and Haider (2021) stated. The pandemic brought operational disruptions to businesses, all no smaller than the COVID-19 pandemic and the great lockdown. A few other fresh researchers looked into the financial strategies that firms are now adopting to stay afloat right in the midstream of the crisis. The modelling of adjustment in working capital and its management, concerning inventory, receivables, and payables adjustment by firms in times of lockdown or market disequilibria not similar to before, has begun (Lin and Wang, 2021).
The non-financial firms based in the UK have faced the following distinctive hazards: Brexit represented the possibility of intermissions in the supply chain and trade relationship. Further, while SMEs largely contribute to a great variety of the UK economy, they have also been evidenced to have a particular tendency toward shocks because of their typically lower level of cash reserves and less frequent access to credit markets (Miklian and Hoelscher, 2022). Tightening their working capital controls to great extents for liquidity maintenance (Brown et al., 2020).
Besides the literature also gives the period of the COVID-19 pandemic and how most firms across the globe took on both conservative and precautionary working capital policies. On the one hand, these are characterised by companies’ desire to focus on liquidity rather than profitability to avoid going out of business (Cohen, 2021). This is especially pronounced for the industries most hard-hit by lockdowns—retail, hospitality, and services (Tunio et al., 2021). They point out that such conservative strategies help save firms in the short term but sabotage recovery and growth in the post-period of the pandemic (Stavick, 2023).
Another thread of the literature has given impetus to the role played by the government in making WCM decisions during the pandemic. The schemes from the UK government to support businesses, such as CBILS and BBLS, provided a much-needed critical buffer on the financial aspect to the non-financial firms. However, the debate rages regarding what level of these bands of schemes the traditional practices within working capital management have altered (Agarwal, 2019). Furthermore, some scholarly arguments are put across the interventions as solutions that offer instant answers but, at the same time, create dependence and cause long delays in functional adjustments that are crucial (Haghani, 2020).
Then, looking more particularly into the flag between WCM and firm performance, recent study findings have suggested that the relationship between efficient working capital management and firm performance will be more assertive in times of crisis (Zimon and Tarighi, 2021). The opportunity costs attached to keeping cash are low and high now that investment opportunities are low, but risks related to non-liquidity are high. This, in another way, implies that firms that can manage their working capital properly will not only survive the crisis but, to the contrary, tend to come out stronger (Wang, Akbar and Akbar, 2020).
This leaves the relation between WCM and firm performance an open empirical question, with preliminary studies from, admittedly, non-financial UK settings showing both positive and negative impacts: on the one hand, some brought to the forefront the fact that firms with agile practices WCM or an aggressive policy of their turnover can quickly pivot their liquidity to meet the changing demand patterns (Preece, 2023), others have warned that excessive pursuit of liquidity may have caused firms to spurn profitable investment opportunities.
Against the background above, the current research is to build upon the earlier ones by comprehensively analysing how non-financial firms in the UK managed their working capital in this new era of business uncertainty and turmoil ignited by COVID-19. This literature review formed the background of the current study, with successes accrued, leaving behind lessons for future crisis management. This research is expected to become a source of academic knowledge, providing practical suggestions for business practitioners and policymakers during the strategy formulation for the economic resilient agenda.
Proposed Research Design
This study is going to use a quantitative approach. The study is going to look into the specifics of working capital management (WCM) of non-financial firms and their relationship with the performance of these firms within such a contemporary, multifaceted, unprecedented economic landscape that the COVID-19 pandemic has brought towards them through a retroactive analysis on the same. This will include 50 non-financial firms listed in various sectors on the London Stock Exchange (Musah and Kong, 2019).
This will be cut up to 2019-2023. It will be the period juxtaposing the financial health at the start of the pandemic and the immediate repercussions at the height of the pandemic. This timeline will be just as relevant when capturing the organisations’ diverse strategies that may have been taken in changing economic conditions with the pandemic. By disaggregating the data into these different phases, we hope our results capture a comprehensive role of WCM in firm performance under different economic pressures (German et al., 2020).
In effect, this will bring a microcosm of the entire UK economy to be represented by the selected firms, therefore only adding credence to the findings estimated not only to be statistically significant but should also bear economic relevance. Some of the specific industries that have the potential to distort the general trends will be excluded therefore, resulting in the accomplishment of such diversity in the sample that will, in turn, enable the cross-sectional comparisons to bring out the industry-specific resilience and adaptability in WCM (Delbufalo, 2022).
The quantitative analysis will be centred on the significant financial metrics against which the operations could be set—the most tangible and reachable low-hanging fruit of change: the cash conversion cycles, current and quick ratios, and profitability measures like return on assets (ROA). In general, the reason is that such indicators give a direct hint to a firm’s operational and financial efficiency (Kwon and Lee, 2019). Both are elements at the core of WCM. The same will be done as much as possible, compiling and analysing with the help of statistical software available; the use of people regression analyses will build up causal relationships, while trend analyses are made to come across the evolution of WCM crossover.
This paper contributes to the discipline of organisational studies by methodically charting the landscape of Web-based Crisis Management / WCM against firm performance in research design, which is likely to give usable insights into effective financial strategies throughout economic disruptions. As a result, the research is no longer just a contribution to the academic discourse but also a practical guideline for financial managers going through crises in the future. So intrinsic to the value is theoretical exploration and practical application in financial management.
Proposed Methods of Data Collection and Analysis
Specifically, the study will source and analyse financial data from the foreseen and interim reports of 50 non-financial listed firm samples of the London Stock Exchange. In particular, focusing on the data from 2019 until 2023, a perception of the working capital management (WCM) approaches within the non-financial sector before and during the COVID-19 impact will be evoked. By focusing on a broad cross-section of industry samples, the study is bound to demonstrate a deep and detailed understanding of working capital management (WCM) across the non-financial sector, as stated by Ajike, Ibrahim and Adewale (2022).
Data points will be the main working capital components of the inventory, accounts receivable, and accounts payable. Performance metrics such as ROA, profitability, and liquidity ratios will also be critical in determining the degree to which WCM experiences value impact in buffering performance (Mandipa and Sibindi, 2022). Thus, the gathering will proceed from strict data extraction from the publicly available financial statements, assuring the validity and accuracy of information used in the analysis.
The analytical tools will be both descriptive and infer data statistics, which summarise data features and infer patterns. More specifically, the study will use multiple regressions to study the patterns of relationships between the working capital variables and the performance of the business after controlling for some macroeconomic conditions at the firm level and some industry effects. This multivariate approach will help isolate the WCM’s effect on the business’s performance from other influencing factors (Khan et al., 2020).
In addition, a time series analysis will be carried out in order to understand trends and changes that happened with WCM over the study period. The comparative analysis will help to identify any shift in WCM practices regarding the challenges surfaced by the pandemic and the different recovery patterns taken up by the firm to find a fit in a post-pandemic environment.
These stringent combinations of quantitative methods will underpin a well-argued and detailed contribution that goes some way to establish the extent to which WCM has impacted firm performance during one of the most turbulent economic periods the world has ever known (Tingbani et al., 2020). The probable, therefore, would be that the findings provide significant milestones to academic research, which again, ironically, presents practical insights into its adoption by industry practitioners.
Project Risk Assessment
The main danger to the research arises from the reliability of the data; some non-financial firms may keep undisclosed financial strategies or measures that affect working capital, so they should be captured in the public records, skewing the analysis. Furthermore, the study is retroactive, which technically suggests that it might be plagued with confounding vehicles in the form of many other external economic shocks, such as the ebbs and flows of a given nation-state’s currency values or sudden market events unrelated to the COVID-19 pandemic (Gordon, Bowles and Weisskopf, 2020). To mitigate these risks, the study will increase the sample size to be more representative and use statistical controls to account for external variables.
Impact
Their findings would be of broad significance to many users. The study’s overall results will also help business managers and financial officers avail empirical evidence on the effectiveness of various WCM strategies in times when the economies are tightening, hence being able to come up with effective financial plans. Therefore, the paper will fill the gap by documenting the resilience that WCM practices have demonstrated throughout the pandemic. Policymakers can also adapt the findings by providing personalised financial assistance to businesses in other crises (Laskovaia et al., 2019). Their investment can adapt the study’s findings to make decisions on financial stability and handling crises before acquiring the investments.
References
Afiezan, A., Wijaya, G. and Claudia, C., 2020. The effect of free cash flow, company size, profitability and liquidity on debt policy for manufacturing companies listed on IDX in the 2016-2019 periods. Budapest International Research and Critics Institute-Journal (BIRCI-Journal) Vol, 3(4), pp.4005-4018.
Agarwal, B., 2019. The gender and environment debate: Lessons from India. In Population and environment (pp. 87-124). Routledge.
Ajike, A.A., Ibrahim, U.A. and Adewale, M.T., 2022. An Empirical Analysis of Nexus between Working Capital Management, Policy and the Corporate Profitability of Listed Non-financial Firms in Nigeria. WSEAS Transactions on Business and Economics, 19, pp.1255-1264.
Antczak, J., Horzela, I. and Nowakowska-Krystman, A., 2021. Influence of Financial Liquidity on the Competitiveness of Defense Industry Enterprises.
Anton, S.G. and Nucu, A.E.A., 2022. On the role of institutional factors in shaping working capital management policies: empirical evidence from European listed firms. Economic Systems, 46(2), p.100976.
Brown, R., Kalafsky, R.V., Mawson, S. and Davies, L., 2020. Shocks, uncertainty and regional resilience: The case of Brexit and Scottish SMEs. Local Economy, 35(7), pp.655-675.
Choi, T.Y., Netland, T.H., Sanders, N., Sodhi, M.S. and Wagner, S.M., 2023. Just in time for supply chains in turbulent times. Production and Operations Management.
Cohen, D., 2021. The Impact of the Covid-19 Pandemic on Small Businesses: A Case Study of the Entrepreneurial Coping Strategies in the hardest hit industries in Finland.
Delardas, O., Kechagias, K.S., Pontikos, P.N. and Giannos, P., 2022. Socio-economic impacts and challenges of the coronavirus pandemic (COVID-19): an updated review. Sustainability, 14(15), p.9699.
Delbufalo, E., 2022. Disentangling the multifaceted effects of supply base complexity on supply chain agility and resilience. International Journal of Physical Distribution & Logistics Management, 52(8), pp.700-721.
Erdin, C. and Ozkaya, G., 2020. Contribution of small and medium enterprises to economic development and quality of life in Turkey. Heliyon, 6(2).
German, L.A., Bonanno, A.M., Foster, L.C. and Cotula, L., 2020. “Inclusive business” in agriculture: Evidence from the evolution of agricultural value chains. World Development, 134, p.105018.
Gordon, D.M., Bowles, S. and Weisskopf, T.E., 2020. Beyond the wasteland: A democratic alternative to economic decline. Verso Books.
Haghani, M., 2020. Optimising crowd evacuations: Mathematical, architectural and behavioural approaches. Safety Science, 128, p.104745.
Khan, W., Ahmed, A.A.A., Hossain, M.S. and Neogy, T.K., 2020. The interactive approach to working capital knowledge: survey evidence. International Journal of Nonlinear Analysis and Applications, 11(Special Issue), pp.379-393.
Kwon, H.B. and Lee, J., 2019. Exploring the differential impact of environmental sustainability, operational efficiency, and corporate reputation on market valuation in high-tech-oriented firms. International Journal of Production Economics, 211, pp.1-14.
Laskovaia, A., Marino, L., Shirokova, G. and Wales, W., 2019. Expect the unexpected: examining the shaping role of entrepreneurial orientation on causal and effectual decision-making logic during the economic crisis. Entrepreneurship & Regional Development, 31(5-6), pp.456-475.
Lin, Q. and Wang, Y., 2021. Working capital management, the market environment and corporate performance: evidence from China. Applied Economics, 53(39), pp.4505-4516.
Mandipa, G. and Sibindi, A.B., 2022. Financial performance and working capital management practices in the retail sector: empirical evidence from South Africa. Risks, 10(3), p.63.
Miklian, J. and Hoelscher, K., 2022. SMEs and exogenous shocks: A conceptual literature review and forward research agenda. International Small Business Journal, 40(2), pp.178-204.
Musah, M. and Kong, Y., 2019. The association between capital structure and the financial performance of non-financial firms listed on the Ghana Stock Exchange (GSE). International Journal of Research in Social Sciences, 9(5), pp.92-123.
Preece, D., 2023. Trends in Working Capital Management. In Working Capital Management: Concepts And Strategies (pp. 453-470).
Simon, S., Sawandi, N., Kumar, S. and El-Bannany, M., 2021. Economic downturns and working capital management practices: A qualitative enquiry. Qualitative Research in Financial Markets, 13(4), pp.529-547.
Stavick, J.D., 2023. The Long-Term Consequences of State Budget Balancing Decisions (Doctoral dissertation, Indiana University).
Tingbani, I., Tauringana, V., Damoah, I.S. and Sha’ven, W.B., 2020. Working capital management and financial performance of UK listed firms: a contingency approach. International Journal of Banking, Accounting and Finance, 11(2), pp.173-201.
Tunio, M.N., Shaikh, E. and Lighari, S., 2021. Multifaceted perils of the Covid-19 and implications: A Review. Studies of Applied Economics, 39(2).
Wang, Z., Akbar, M. and Akbar, A., 2020. The interplay between working capital management and a firm’s financial performance across the corporate life cycle. Sustainability, 12(4), p.1661.
Yousaf, M., Bris, P. and Haider, I., 2021. Working capital management and firm’s profitability: Evidence from Czech certified firms from the EFQM excellence model. Cogent Economics & Finance, 9(1), p.1954318.
Zimon, G. and Tarighi, H., 2021. Effects of the COVID-19 global crisis on the working capital management policy: Evidence from Poland. Journal of Risk and Financial Management, 14(4), p.169.
write