Working Capital Management and Firm Performance: Evidence from Kazakhstan

Abstract

The literature on working capital management (WCM) provides mixed evidence on the effect of working capital on firm profitability and performance. Using firms from the Kazakhstan Stock Exchange (KASE), we examine the relationship between WCM and firms’ performance. Particularly, we look at how working capital components relate to firms’ performance while controlling for firm-specific and macroeconomic factors. Our findings show that the cash conversion cycle (CCC) is inversely related to firm performance—a shorter cash conversion cycle is associated with higher firm performance measured by ROA. We find that receivables and inventory management significantly impact firm performance. We also find that the efficiency of working capital management is influenced by company-specific variables such as firm size, growth, and leverage, as well as uncontrollable macroeconomic variables such as economic growth and inflation. Finally, we find that both the Energy and Telecommunication sectors perform significantly better than the benchmark Consumer non-cyclical sector.