Working Capital Management and Performance of Listed SMEs

This paper reports the results of an investigation of the effect of Working Capital Management (WCM) on the performance of listed Small and Medium Enterprises (SMEs). The study also examines whether the effect of WCM on performance differs between ‘small' and ‘medium' firms. The paper employs panel data regression analysis on a sample of 141 Alternative Investment Market (AIM) listed SMEs for an eight year period (2007-2014). The panel data analysis results show that for all SMEs, WCM components (inventory holding period, accounts receivable period and accounts payable period) have concave relationships with performance. However, when the SMEs are split into ‘small' and ‘medium' firms, the results suggest that WCM is relatively more important to the performance of ‘small' firms than ‘medium' firms. Overall, the results imply that WCM components affect performance of the listed SMEs. However, the effect of WCM on performance differs significantly between ‘small' and ‘medium' firms. The findings have important implication for policy makers who prescribe financial assistance mechanisms for SMEs