The Mediating Effect of Working Capital on the Relationship between Debt Financing and Financial Performance: Evidence from Listed Non-Financial Firms in the East Africa Community

The purpose of this study was to investigate the mediating effect of working capital on the relationship between debt financing on financial performance among East African Community-listed non-financial enterprises. To achieve this goal, secondary data was collected from four East African states. Throughout the 2011–2020 study periods, the research employed an explanatory research design. The study operationalized debt financing by debt/assets ratio and debt/equity ratio. Financial performance was operationalized by return on assets (ROA) and earnings per share (EPS). Working capital was operationalized as current ratio and quick ratio. The findings indicated that in Tanzania, the current ratio acts as a mediator in the relationship between return on asset and debt/asset ratio. However, in Kenya, Rwanda, and Uganda, current ratio did not act as a mediator in the relationship between return on asset and debt to asset ratio. The study’s findings have expanded our understanding of previously uncharted territory. It validates theories of financial management that suggest concepts related to organization characteristics, working capital, and debt financing affect financial performance. It is suggested that future study concentrate on non-East African Community states. By doing so, it will be possible to ascertain whether the study’s conclusions apply to other parts of Africa.