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Determinants of working capital: empirical evidence on manufacturing SMEs

Author

Listed:
  • Filipe Sardo
  • Zélia Serrasqueiro

Abstract

Purpose - This study seeks to analyse the determinants of working capital of manufacturing small and medium-sized enterprises (SMEs), particularly the effect of the probability of financial distress on working capital. Design/methodology/approach - Using panel data models, the authors analyse a sample of 3994 manufacturing SMEs for the period 2011–2017. Findings - The results suggest that SMEs pursue conservative working capital management to avoid the failure to fulfil the commitments with creditors. Also, the positive impact of the probability of financial distress on SME working capital suggests that SMEs exposed to a higher probability of bankruptcy invest more in working capital to avoid the risk of default and financing imbalance. Originality/value - The novelty of this study is to extend the consequences of aggressive or conservative working capital management by analysing the probability of financial distress on working capital.

Suggested Citation

  • Filipe Sardo & Zélia Serrasqueiro, 2021. "Determinants of working capital: empirical evidence on manufacturing SMEs," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 49(3), pages 506-521, March.
    • Handle: RePEc:eme:jespps:jes-10-2020-0513
    DOI: 10.1108/JES-10-2020-0513
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