Abstract

JEL Classification

Keywords

۱٫ Introduction

۲٫ The Spanish fish canning industry: dimensions and the relevance of WCM

۳٫ Literature review and proposal of hypotheses

۴٫ Methodology

۵٫ Empirical results

۶٫ Conclusions

CRediT authorship contribution statement

References

Abstract

Credit restrictions, such as those happening in the current context shaped by the crisis derived from COVID-19, make working capital management (WCM) a driving force behind SME performance. This paper analyses whether WCM policies affect the economic and financial profitability of Spanish companies in the fish canning industry. Spain leads the EU’s production of canned seafood and the seafood industry is a key sector for the Spanish economy. To assess the WCM-profitability relationship, we applied a dynamic panel data methodology in a sample consisting of 377 companies during the period 2010–۲۰۱۸٫ We can conclude that the economic profitability of fish canning companies is related to the collection period (Days Sales Outstanding or DSO) and the inventory conversion period (Days Inventory Outstanding or DIO). Moreover, empirical evidence reveals the existence of an optimal level of receivables that balances the benefits of increasing sales and the opportunity costs of customer funding. The findings also identify a convex relationship between investment in inventory and economic profitability.

۱٫ Introduction

The literature on corporate finance has traditionally focused on long-term financial decisions [38], [4], leaving short-term finances behind (i.e., working capital investment and financing policies). Nevertheless, the latter conditions the day-to-day activities of companies and, in turn, their financial outcomes, especially in small and medium-sized enterprises (SMEs). Along this line of reasoning, Howorth and Westhead [25] highlight that working capital management (WCM) has a greater impact on SME profitability than in larger companies due to the high percentage of current assets, the insufficient amount of liquidity, and the highly volatile cash flows that often characterise SMEs [43]. Additionally, since SMEs face more difficulties in accessing long-term debt, they increase their reliance on short-term liabilities through spontaneous financing and short-term bank loans [13], [17]. All of these SME characteristics underline the importance of an efficient WCM to enhance financial outcomes such as firm profitability and survival [17], [25], [41].

Besides, the financial constraints and high dependence on bank lending often experienced by SMEs [24] have led them to encounter a drastic shortage of liquidity in the aftermath of the Great Recession [7]. Responding to this challenge, European governments have increased efforts towards facilitating access to finance for SMEs [14], implementing strategies to ensure timely payments among other actions. The current context shaped by the crisis derived from the COVID-19 pandemic suggests a liquidity shortage similar to that experienced during and after the financial crisis of 2007.