Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland

Abstract

The paper aims to investigate the effects of the COVID-19 pandemic on working capital management policies among Polish small and medium-sized enterprises operating in Group Purchasing Organizations (GPOs). The results show that the firms adopted a moderate–conservative strategy for their working capital management. Moreover, the evidence confirms that the COVID-19 pandemic crisis did not change Working Capital Management (WCM) strategies significantly. The companies that have high financial security as a result of the high ratio of Liquidity, Quick, and cash conversion cycle (CCC) have tried to attract more new customers in the market by increasing the due date of accounts receivable so they can improve their sales performance, and also reduce the liabilities turnover to be able to work with more suppliers in the market. Moreover, among the various WCM strategies, the companies with a higher CCC ratio, along with those whose bulk of current assets consisted of accounts receivable and short-term investments, managed to have higher sales returns. Finally, our outcomes indicate that the firms operating in large cities have lower sales returns, meaning even Polish small and medium-sized enterprises’ ability within GPOs with the aid of the central unit can also get high return on sales (ROS) results.

Working Capital

“…If profit is retained in an enterprise, such actions positively affect the added level of net working capital, and its level increases. In addition, an increase in sales means greater opportunities to obtain more favorable discounts [29,35]. Discounts are another chance to improve the level of profits if one makes early payments [26].…”

“…Positive working capital and its management primarily keep the company in a good and healthy financial condition-"financial health" [19,20]. The literature often reports that working capital directly impacts the company's financial liquidity [20][21][22][23], profitability [24][25][26][27][28][29][30][31][32][33], and solvency, which allows for optimizing costs [21,[33][34][35][36][37][38]. Therefore, its role and influence on the financial situation of an enterprise are enormous.…”

“…The conservative strategy is associated with a high level of liquidity, as there is a significant advantage of current assets over current liabilities. It is a safe strategy for an enterprise [29].…”

“…Liabilities also account for a small share, while receivables are kept at a relatively high level. The high level of receivables is because sales based on trade credit are directed to regular customers and to low credibility [25,29,35].…”

Financial Stability of European Insurance Companies during the COVID-19 Pandemic

“…Moreover, the latest research on insurance sector shows that insurers seems to be focused on optimizing internal costs rather than improving their value delivery to customers (Pugnetti and Seitz 2021). On the other hand, Zimon and Tarighi (2021) shows that some companies during the COVID-19 pandemic might try to attract more new customers in the market by increasing the due date of accounts receivable so they can improve their sales performance, and also reduce the liabilities turnover to be able to work with more suppliers in the market. Therefore, we formulate the following hypothesis:…”