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Effects of Working Capital Management on Small-Sized Businesses in Competitive Environments with Economic Policy Uncertainty—A Case Study Applied to Chilean Companies

Year: 2024

Type: article

Abstract: Working capital is a strategic resource that not only enhances financial performance but also ensures the long-term sustainability of organizations, especially SMEs. In the context of evolving economic policies and the challenges of gender equity affecting Chilean companies, this study explores how economic policy risk (EPU) and CEO characteristics influence working capital, which are essential investments for sustainable growth. The analysis covers 12,839 SMEs from 2014 to 2019. Using a fixed-effects panel data model, the findings reveal that firms tend to increase their investment in working capital in response to rising economic policy uncertainty. However, the relationship follows a non-linear inverted U-shaped pattern, which suggests the existence of an investment optimum between working capital and the EPU. Considering the level of competition, companies increase their investment in working capital when the level of competition is higher. Regarding the gender and age of CEOs, it is observed that women invest less in working capital, as do young CEOs. These results underscore the importance of EPU, along with the gender and age of CEOs, as key factors in promoting sustainable working capital management.

Source: Sustainability

DOI: 10.3390/su16219289

Authors: Juan Alejandro Gallegos Mardones, Hugo Alejandro Moraga-Flores, Vanessa Paulina Briones Soto

Institutions: Universidad Católica de la Santísima Concepción, University of Concepción

Language: English

Topic: Working Capital and Financial Performance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Estimated APC paid: $2,728