Working Capital Management and Firms Performance: Evidence from Selected East African Countries, 2020

Abstract

This study aimed to empirically discover the effect of working capital management (WCM) on the performance of listed manufacturing firms in Dar es Salaam Stock Exchange (DSE) and Nairobi Securities Exchange (NSE). A sample of 18 firms listed on the DSE and NSE for the period ranging between 2014 to 2018 was selected. The quantitative research methods, correlation and multiple regressions were used to analyze the data. Components working capital management has been used as an independent variable (i.e. inventory turnover (ITO), cash conversion cycle (CCC), average collection period (ACP), and average payment period (APP)), while firm performance (FP) has been used as a dependent variable (i.e., return on asset (ROA), return on equity (ROE). The results of multiple regression revealed that the APP, ITO and CCC have a negative and significant impact on ROA, but ACP has a positive and significant impact on ROA. At the same time, APP has a significant negative impact on ROE. The ITO has a significant negative impact on ACP and a positive and statistically significant impact on WCM. The study results supported that WCM influences the FP of the selected listed firms. By authenticating the findings with previous researchers, this study will contribute to the existing body of knowledge on literature. It will be useful to the managers enhancing the realization of objectives of shareholders’ maximization. The study suggested that manufacturing companies are required to estimate reasonably and evaluate the cash flows of the business, to reasonably identify the long run and short-run cash inflows and outflows to timely sort out cash shortages as well as excess to formulate financing and investing strategies respectively.