Literature shows that Working Capital Management (WCM) affects profitability and liquidity. Economic conditions may stress those relationships, especially during economic downturns. We analyze the effects of economic cycle on the relationship between WCM and profitability, using a sample of UK unlisted companies between 2006 and 2014. We find that WCM efficiency increases profitability. This positive impact is even more important during economic downturns. Our results show multi-level effects of WCM on profitability and liquidity constraints, with varying economic conditions. Results matter economically and managerially and highlight the importance of considering WCM as part of overall corporate financial strategy.

No abstract

This study analyses the relationship between earnings management and corporate social responsibility. To this end, we use a sample of 568 listed companies from the European Union between 2010 and 2018. We use discretionary accruals as the measure of earnings management, under the Modified Jones model. Corporate social responsibility is proxied by the Combined Environmental, Social and Governance Score from the ASSET4 database. We find a negative relation between earnings management and corporate social responsibility, suggesting that managers from more socially responsible companies have a more ethical behavior and, thus, financial reporting of higher quality. Additional analysis provides evidence that economic cycles and financial performance play important roles in the relation between earnings management and corporate social responsibility. During periods of crisis or of losses, the relationship is positive, suggesting that under unfavorable economic conditions, management makes opportunistic use of a sustainable company’s status to manage earnings.

No abstract