The Impact of Corporate Governance on Working Capital Management Efficiency: Evidence from the Listed Companies in the Consumer Services Sector in Botswana

Abstract

The paper presents the findings of the analysis of the impact of corporate governance mechanisms on working capital management efficiency in the listed companies of the Consumer service sector in Botswana. Eight corporate governance elements and seven working capital components were extracted from the annual reports of a sample of six companies for the period 2012 to 2017 for the analysis. Thirty six observations were obtained. Pearson correlations were executed to determine the relationship between corporate governance elements and working capital components. OLS regression analysis was performed to establish the explaining power of the combination of corporate governance elements on each of the working capital components. The correlation analysis shows that number of non-executive directors has a significant negative but moderate relationship with cash conversion cycle and number of board subcommittees has significant positive but moderate relationship with Debt ratio. The regression results suggest that corporate governance mechanisms have a significant impact on working capital management, the highest impact being reflected on inventory conversion period. The implications of these findings are that boards of directors have a significant role to play in working capital management efficiency of the companies they govern. They should therefore continue providing attainable policies on working capital management and remain vigilant on demanding feedback on their implementations.

Determinants of Liquidity in Manufacturing Firms

“…They evidently showed that the value of cash is approximately doubled in by well-governed firms compared to firms with poor or weak corporate governance and poorly-governed firms also dissipate cash more quickly and less effficiently. The same finding was reached in the study by Sathyamoorthi, Mbekomize, Mapharing, and Selinkie (2018) as they claimed that the number of non-executive directors has a significantly negative correlation with the net operating cycle. Our hypothesis is proposed as follow: H3: Board independence has a positive impact on firm's solvency…”

“…On an average, a manufacturing firm in Ho Chi Minh City Stock Exchange gives its credit customers 111 days (equivalent to nearly 4 months to pay off their debts while it is offered by the suppliers or creditors for a credit term of just only 46 days. The days of accounts receivables in Vietnamese manufacturing companies is much longer than that in the listed companies in Botswana (10 days) and America (50 days), signifying the inefficient management of receivables (Gill & Biger, 2013;Sathyamoorthi, Mbekomize, Mapharing, & Selinkie, 2018). That might be the reason for the high level of debts and liabilities employed by those companies as their mean of debt ratio is at 1.5.…”

“…Board size is one of the important characteristics investigated in the previous researches to have made an impact on the level of working capital investment in firms. Sathyamoorthi, Mbekomize, Mapharing, and Selinkie (2018) contended that the board of directors plays the key role in ensuring the efficiency of company's liquidity management by providing and supervising the firm's working capital policies. They constructed the model to investigate the effect of the board index, represented by board size, executive and non-executive members, male and female members, on each component of cash conversion cycles and this metrics as a whole.…”

Good Corporate Governance Dan Kinerja Keuangan

“…GCG perlu diterapkan dalam perusahaan agar dapat memberi nilai tambah bagi perusahaan serta pihak-pihak yang berkepentingan. GCG yang efektif dapat diterapkan dengan bertanggung jawab melindungi dan meningkatkan kekayaan yang telah diinvestasikan pada perusahaan (Sathyamoorthi et al, 2018). Menurut peraturan menteri BUMN PER-01/MBU/201 terdapat prinsip-prinsip yang perlu diterapkan BUMN guna memaksimalkan nilai BUMN.…”

“…Hal tersebut sejalan dengan penelitian dari Ningsih et al (2019) bahwa peningkatan jumlah anggota dewan direksi akan meningkatkan kinerja keuangan. Rumus untuk menghitung dewan direksi menurut Sathyamoorthi et al (2018) adalah sebagai berikut.…”