Economic downturns and working capital management practices: a qualitative enquiry

This study aims to explore changes in working capital management (WCM) practices in response to economic downturns, especially during the coronavirus pandemic.

This study adopts an interpretative approach. This paper used semi-structured interviews with 2 finance directors and 13 top managers for data collection. This paper used thematic analysis for analysing the interview data.

The study findings suggest that the traditional ways of managing working capital may no longer be sufficient during a crisis. Instead, dynamic financing, trade credit policy and continuous staff training to develop new skills are alternative WCM practices to navigate the challenges of a crisis. Further, this paper finds that economic conditions, such as inflation rates, interest rates, exchange rates and government policy, negatively affect WCM.

The study findings highlight practical issues that may help firms meet their present and future financing needs, manage their day-to-day operational activities and enhance performance, both operational and financial. The study is beneficial for regulators in understanding a firm’s constraints during crises and respond appropriately.

This is the first study, to the best of the knowledge that uses a qualitative approach to investigate the impact of economic downturns on WCM practices of firms. Thus, this study offers new insights into the fundamentals of WCM practices during crises.