Working capital management and firm performance: are their effects same in covid 19 compared to financial crisis 2008?

The recent covid 19 has increased the challenges for worldwide businesses to manage working capital. Compared to the studies on the financial crisis of 2008, management of working capital and firm performance relation during the covid 19 is less studied, particularly in developing countries. Therefore, this study examined the working capital management and firm performance relation in 577 firms from three Asian developing countries from 2004 to 2020. The working capital measurement includes working capital investment policy, working capital financing policy, cash conversion cycle (CCC), and net working capital (NWC). Firm performance is measured by return on assets (ROA) and Tobin's Q (TQ). To examine the working capital management and firm performance during the crisis 2008 and covid 19, Kruskal-Wallis test is used. Results revealed that working capital management and firm performance were more affected during covid 19 than crisis 2008 period. In addition, this study compared the working capital management and firm performance relation for covid 19 and crisis 2008 using the dynamic panel system generalized method of moments (GMM). Results showed the difference in the effect of working capital management on firm performance during the covid 19 period as compared to the crisis 2008 period. CATAR significantly and negatively influenced ROA but significantly and positively influenced TQ. In contrast, CLTAR and CCC significantly and positively influenced ROA but significantly and negatively influenced TQ. NWC significantly and positively influenced ROA only. To the best of our knowledge, this study is the first empirical research study to extend cross-country analysis in respect of non-financial firms to the developing countries' context. The results of this study provide important managerial implications for firms. The different results for different firm performance proxies imply that firm managers must adopt the working capital policies which are profitable for firms and shareholders. Thus, firms in developing countries would be able to optimize their working capital according to the economic conditions.