Working capital management and managerial talent

Abstract

PurposeTalented managers arguably remain quintessential to firm value and performance. While the literature offers evidence for the long-term orientation of talented managers, there is a paucity of evidence on the short-term performance of managers. Here, we examine the relationship between managerial talent and working capital management (WCM).Design/methodology/approachThis study primarily employs a panel fixed-effect method controlling for firm-year and firm-industry for non-financial and non-utility firms for the years 1980 through 2016. Also, the authors control of potential bias that may impact the result. These controls include social capital, financial constraints and tests for endogeneity and spurious correlation.FindingsThe authors find the association between managerial talent and WCM to be positive and significant. The results indicate that talented managers have a higher cash conversion cycle. The empirical evidence still holds after controlling for social capital, religiosity and financial constraints. Also, the evidence still holds by employing an interaction term between Tobin's Q as a proxy for investment opportunities and talented managers.Practical implicationsThe finding may lend credence to executive contracts. Human nature, by default, is only vested on a net benefit for self-aggrandization. Self-aggrandization can be evident through structures in managerial contracts. These contracts usually tie consequences to long-term growths. If a benefit is offered based on short-term operational goals, talented managers may do more to the management of working capital.Originality/valueIn the managerial talent literature, talents reflect a holistic picture of one that can succeed in both the short-term and long-term goals of a company. Here, the authors show that talented managers are inefficient in meeting short-term goal – working capital management. Thus, the authors add to the research by providing evidence that talented managers are myopic.

Impact of COVID-19 exposure on working capital management: The moderating effect of investment opportunities and government incentives

“…CCC is a commonly used metric as indicated by Barros et al. (2021) and in other studies (e.g., Baños-Caballero et al., 2011 ; Boisjoly et al., 2020 ; Burney et al., 2021 ; Deloof, 2003 ; Mättö and Niskanen, 2020 ; Singh et al., 2017 ; Ujah et al., 2020 ) given its peculiar features. For instance, CCC seeks to measure liquidity with a time feature ( Afrifa and Padachi, 2016 ; Richards and Laughlin, 1980 ; Wang, 2002 ) given its dynamism based on firms’ operations relating data from the balance sheet and the income statement ( Barros et al., 2021 ).…”

“…To examine the moderating effect of investment opportunities and COVID-Exposure on CCC, I used Tobin'sQ as a measure of a firm's investment opportunities ( Ujah et al., 2020 ). Tobin'sQ has been used to explicate several diverse corporate phenomena, such as cross-sectional variations in decisions regarding investment and diversification ( Chung and Pruitt, 1994 ).…”

“…Tobin'sQ has been used to explicate several diverse corporate phenomena, such as cross-sectional variations in decisions regarding investment and diversification ( Chung and Pruitt, 1994 ). Ujah et al. (2020) indicated that Tobin'sQ reduces the CCC by an average of 15 days.…”

“… Billett and Mauer (2003) supported this reasoning and argued that diversified firms allocate capital inefficiently which decreases their value. As increases in CCC increases the number of days cash gets tied up, firms with more investment opportunities tend to be efficient at WCM ( Ujah et al., 2020 ) to buffer against cash constraint, thus enhancing the value of firms. Further, firms receive investment subsidies through investment tax credit (ITC) ( Sen and Turnovsky, 1990 ) as a way of government incentive.…”

Is social capital a determinant of board gender diversity?

“…From 2009 to 2018, tags with "social capital" increased to 17,200 times per year. For example, Ujah et al (2020) show that social capital exacerbates managerial talents by extending the number of days to convert cash resources.…”