The Impact of Working Capital Management on Financial Performance of Cost Leadership and Differentiation Strategy Firms in Different Business Cycles: Evidence from New Zealand

Abstract

ABSTRACT We examine the impact of managing working capital on financial performance in New Zealand over the period of 2005 to 2017. Our empirical analysis provides evidence of a nonlinear relationship between working-capital management and financial performance. In addition, our finding seems to suggest that a cost leadership strategy firm is more efficient at managing working capital than a differentiation strategy firm. Specifically, our findings imply that managers of the firms with a cost-leadership strategy created more value by reducing net-trade cycle by 40 days. Our research has implications for managing trade receivables and inventories given their importance for firms’ survival.