The Impact of Working Capital Ratios on Operational Performance under Covid-19 Pandemic: Evidence from Listed Material Sector Firms in Sri Lanka

This paper investigates whether the Covid-19 pandemic impacts the association between working capital ratios and operational performance. Using comparison tests by taking a sample of listed material sector firms in Sri Lanka from 2019Q1 to 2021Q2, this study first examines whether working capital ratios have become statistically different between pre Covid-19 period and during the Covid-19 period. Secondly, this paper employs panel regression analysis for pre-Covid-19, during Covid-19 and the full samples to identify how Covid-19 has reshaped the association between working capital ratios and operational performance measured by return-on-sales (ROS). The results show that, apart from days-sales-outstanding (DSO), other working capital measures are similar between the pre-Covid-19 period and during the Covid-19 period. Further, the results suggest that ROS is higher when firms delay payments to suppliers during pre Covid-19 period. However, this paper finds that ROS is not responsive to working capital ratios during the Covid-19 period.