Does the efficiency of working capital management affect a firm’s financial distress? Evidence from UAE
ISSN: 1472-0701
Article publication date: 8 June 2022
Issue publication date: 12 October 2022
Abstract
Purpose
This study aims to explore the relative efficiency of the working capital management (WCM) for Emirati firms before and during the coronavirus crisis. Next, this study explores the potential impact of WCM on the likelihood of financial distress.
Design/methodology/approach
A data envelopment analysis (DEA) was applied to assess the relative efficiency of the WCM. This study uses the emerging market Z-score model to predict the likelihood of financial distress. The logistic regression was applied to investigate the impact of the efficiency of WCM on firms’ financial distress.
Findings
The results of this study model showed a negative and significant influence of the efficiency of WCM on firms’ financial distress likelihood.
Practical implications
The findings have important implications for many stakeholders, including decision makers, WC managers, financiers, investors, financial consultants, researchers and others, in increasing their awareness of firms’ WCM performance before and during the crisis. Further, the results could have implications for trading strategies as investors seek attractive economic gains from their investment in firms that care about WCM.
Social implications
The implications of WCM performance on social interests would cause firms’ decision makers to operate efficiently and achieve the best practices to minimise the probability of firms' financial distress.
Originality/value
This study advances a novel contribution to the literature by introducing a novel model to assess WCM based on DEA technology.
Keywords
Acknowledgements
Author contributions: The first author conceived the project, planned the research framework, fundamental analysis, statistical models, and collected and analysed the data. In addition, the first author wrote the abstract, introduction, data and methodology, results and discussion, conclusions and implications, reviewed and edited the manuscript, and responded to the editor and reviewers’ comments. The second author conceived the project, planned the research framework, and wrote the introduction and literature review.Funding: This research received no external funding.Conflicts of interest: The authors declare no conflict of interest.
Citation
Habib, A.M. and Kayani, U.N. (2022), "Does the efficiency of working capital management affect a firm’s financial distress? Evidence from UAE", Corporate Governance, Vol. 22 No. 7, pp. 1567-1586. https://doi.org/10.1108/CG-12-2021-0440
Publisher
:Emerald Publishing Limited
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