Determinants of Working Capital Management Efficiency

Abstract

This study investigates the determinants of Working Capital Management Efficiency (WCME) by integrating firm-level, institutional, technological, and macroeconomic factors within a mixed-method framework. Using a balanced panel of firms across emerging and developed economies , the analysis employs System GMM estimations complemented by Fixed and Random Effects models to mitigate endogeneity concerns. The results demonstrate that profitability, liquidity, and firm size significantly improve WCME by reducing the Cash Conversion Cycle (CCC), while leverage and financial constraints act as barriers. Governance quality and ESG practices emerge as critical enablers, moderating the adverse effects of debt and institutional weaknesses. Furthermore, technological adoption, particularly FinTech integration, enhances efficiency by optimizing receivables and payables management. Comparative results reveal that developed economies consistently outperform emerging markets, though technology adoption enables emerging-market firms to partially close the efficiency gap. Macroeconomic conditions, including inflation, GDP growth, and exchange rate volatility, are also shown to exert significant influence on WCME. The study’s novelty lies in its holistic perspective that incorporates digital transformation and sustainability dimensions, extending beyond conventional financial determinants. The findings provide important implications for managers to align liquidity strategies with profitability and technological innovation, and for policymakers to strengthen institutional frameworks and ensure macroeconomic stability. Overall, the study contributes to theory and practice by offering integrated evidence on the multidimensional drivers of WCME, paving the way for future research on the role of governance, sustainability, and digitalization in short-term financial management.