Corporate Governance and Its Relationship with the Working Capital Management in Europe
How to cite (SHIRKAH) :
This study aims to investigate the impact of corporate governance on working capital management, which has been relatively overlooked despite its significance on corporate performance. Using the Ordinary Least Square regression model, a model was developed to assess the relationship between dependent and independent variables. Secondary data from the annual reports of 42 non-financial firms listed on the Frankfort and Oslo stock exchanges from 2017 to 2021 were collected. The dependent variable, working capital management, is indicated by cash holding, while the independent variable, corporate governance, is measured through five proxies: board meeting, board remuneration, the board size, CEO remuneration, and CEO tenure. Leverage and firm size are involved as control variables. The findings revealed that board meetings, board remuneration, CEO remuneration, and CEO tenure exhibit a positive and significant relationship with working capital management. However, board size demonstrated a negative but insignificant relationship. Additionally, the study showed that leverage has a negative relationship, while firm size has a positive relationship with working capital management. In conclusion, the study suggests that future research should focus on the financial sector to conduct comparative analyses with other sectors.
Abdullah, H., & Tursoy, T. (2023). The Effect of corporate governance on financial performance: Evidence from a shareholder-oriented system. Iranian Journal of Management Studies, 16(1), 79–95. https://doi.org/10.22059/IJMS.2022.321510.674798
Abebe Zelalem, B., Ali Abebe, A., & Wodajo Bezabih, S. (2022). Corporate governance and financial performance in the emerging economy: The case of Ethiopian insurance companies. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2117117
Achchuthan, S., & Kajananthan, R. (2013). Corporate governance practices and working capital management efficiency: Special reference to listed manufacturing companies in Sri Lanka. Information and Knowledge Management, 3(2), 216–226. https://www.iiste.org/Journals/index.php/IKM/article/view/4571
Afza, T. & Adnan, S. (2007). Determinants of corporate cash holdings: A case study of Pakistan. Proceedings of Singapore Economic Review Conference Organized by Singapore Economics Review and the University of Manchester (Brooks World Poverty Institute), 164–165.
Aizyadat, A. A. K. (2022). The impact of boards of directors’ characteristics on cash Holdings. International Journal of Finance and Banking Research, 8(2), 57. https://doi.org/10.11648/j.ijfbr.20220802.11
Al-Rahahleh, A. S. (2016). Corporate governance quality and cash conversion cycle: Evidence from Jordan. International Business Research, 9(10), 140. https://doi.org/10.5539/ibr.v9n10p140
Ali, B., & Shah, S. (2017). The impact of corporate governance on working capital management efficiency: A Quantitative study based on Pakistani manufacturing firms. City University Research Journal, 7(2), 272–284. https://cusitjournals.com/index.php/CURJ/issue/view/32
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342. https://doi.org/10.1016/j.jacceco.2004.01.004
Coleman, M., Wu, M., & Baidoo, M. (2020). Corporate governance and working capital policy: An unobserved influence. Emerging Economy Studies, 6(1), 106–122. https://doi.org/10.1177/2394901520907710
Dalci, I., & Ozyapici, H. (2018). Working capital management policy in health care: The effect of leverage. Health Policy, 122(11), 1266-1272. https://doi.org/10.1016/j.healthpol.2018.09.012
Darouichi, A., Kunisch, S., Menz, M., & Cannella Jr, A. A. (2021). CEO tenure: An integrative review and pathways for future research. Corporate Governance: An International Review, 29(6), 661-683. https://doi.org/10.1111/corg.12396
Dou, Y., Sahgal, S., & Zhang, E. J. (2015). Should independent directors have term limits? The role of experience in corporate governance. Financial Management, 44(3), 583–621. https://doi.org/10.1111/fima.12091
Drobetz, W., & Grüninger, M. C. (2007). Corporate cash holdings: Evidence from Switzerland. Financial Markets and Portfolio Management, 21(3), 293–324. https://doi.org/10.1007/s11408-007-0052-8
Eluyela, D. F., Akintimehin, O. O., Okere, W., Ozordi, E., Osuma, G. O., Ilogho, S. O., & Oladipo, O. A. (2018). Board meeting frequency and firm performance: examining the nexus in Nigerian deposit money banks. Heliyon, 4(10), e00850. https://doi.org/10.1016/j.heliyon.2018.e00850
Basheer, M. F. (2014). Impact of corporate governance on corporate cash holdings: An empirical study of firms in manufacturing industry of Pakistan. International Journal of Innovation and Applied Studies, 7(4), 1371–1383. http://www.ijias.issr-journals.org/
Fernández-Temprano, M. A., & Tejerina-Gaite, F. (2020). Types of director, board diversity and firm performance. Corporate Governance (Bingley), 20(2), 324–342. https://doi.org/10.1108/CG-03-2019-0096
Ferreira, M. A., & Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295–319. https://doi.org/10.1111/j.1354-7798.2004.00251.x
Ganesan, V. (2007). An analysis of working capital management efficiency in telecommunication equipment industry. Rivier Academic Journal, 3(2), 1–10. http://www.rivier.edu/journal/ROAJ-Fall-2007/J119-Ganesan.pdf
Gill, A., Biger, N., Mand, H. S., & Shah, C. (2012). Corporate governance and capital structure of small business service firms in India. International Journal of Economics and Finance, 4(8), 83–92. https://doi.org/10.5539/ijef.v4n8p83
Gill, A. S., & Biger, N. (2013). The impact of corporate governance on working capital management efficiency of American manufacturing firms. Managerial Finance, 39(2), 116–132. https://doi.org/10.1108/03074351311293981
Goel, U., Bansal, N., & Sharma, A. (2015). Impact of corporate governance practices on working capital management efficiency: A structural equation modelling approach. Indian Journal of Finance, 9(1), 38–48. https://doi.org/http://dx.doi.org/10.17010/ijf%2F2015%2Fv9i1%2F71534
Graf-Vlachy, L., Bundy, J., & Hambrick, D. C. (2020). Effects of an advancing tenure on CEO cognitive complexity. Organization Science, 31(4), 936-959. http://graf-vlachy.com/publications/Graf-Vlachy%20et%20al%202020%20Effects%20of%20an%20Advancing%20Tenure%20on%20CEO%20Cognitive%20Complexity%20OS.pdf
Gujarati, N.D. & Porter, D. C. (2009). Basic Econometrics (5th Editio). McGraw-Hill Irwin.
Hamood, N., Almaqtari, F., Al-Faryan, M. A. S., & Tabash, M. (2022). Impact of corporate governance on working capital management: an empirical investigation from India. Global Business and Economics Review, 27(4), 406–428. https://doi.org/https://doi.org/10.1504/GBER.2022.126636
Harymawan, I., Agustia, D., Nasih, M., Inayati, A., & Nowland, J. (2020). Remuneration committees, executive remuneration, and firm performance in Indonesia. Heliyon, 6(2), e03452. https://doi.org/10.1016/j.heliyon.2020.e03452
Huang, X., Liu, J., Min, L., Zeng, Q., Zhang, J., & Zhang, X. (2023). CEO’s functional experience and firm performance based on text mining. Plos one, 18(3), e0281866. https://doi.org/10.1371/journal.pone.0281866
Idress, M., Bangash, R., & Khan, H. (2022). The impact of board structure and board committee attributes on firm’s cash holdings: An empirical study from Pakistan. Journal of Asian Finance, 9(3), 135–0147. https://doi.org/10.13106/jafeb.2022.vol9.no3.0135
Indjejikian, R. J. (2007). Discussion of accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45(2), 421–426. https://doi.org/10.1111/j.1475-679X.2007.00239.x
Isshaq, Z., Bokpin, G. A., & Mensah Onumah, J. (2009). Corporate governance, ownership structure, cash holdings, and firm value on the Ghana Stock Exchange. Journal of Risk Finance, 10(5), 488–499. https://doi.org/10.1108/15265940911001394
Jamalinesari, S., & Soheili, H. (2015). The relationship between the efficiency of working capital management companies and corporate rule in Tehran stock exchange. Procedia - Social and Behavioral Sciences, 205(May), 499–504. https://doi.org/10.1016/j.sbspro.2015.09.052
Jamil, S., Anwar, A., Afzaal, N., Tariq, A., & Asif, M. (2016). Determinants of corporate cash holdings: Empirical analysis of Pakistani Firms. IOSR Journal of Economics and Finance (IOSR-JEF), 7(3), 29–35. https://doi.org/10.9790/5933-0703032935
Kamau, S. M., & Basweti, K. A. (2013). The relationship between corporate governance and working capital management efficiency of firms listed at the Nairobi securities exchange. Research Journal of Finance and Accounting, 4(19), 190-199. https://www.iiste.org/Journals/index.php/RJFA/article/view/9516
Kamel, S. (2015). The impact of corporate governance and firm maturity on working capital management efficiency: Evidence from listed European firms (Master’s Thesis, the American University in Cairo). AUC Knowledge Fountain. https://core.ac.uk/download/pdf/333723362.pdf
Kengatharan, L., & Tissera, W. S. S. (2019). Do corporate governance practices influence working capital management efficiency? Evidence from listed manufacturing companies in Sri Lanka. Research in World Economy, 10(3). https://doi.org/10.5430/RWE.V10N3P205
Kariuki, S. N., Namusonge, G. S., & Orwa, G. O. (2015). Determinants of corporate cash holdings: evidence from private manufacturing firms in Kenya. International Journal of Advanced Research in Management and Social Sciences, 4(6), 15-33. https://garph.co.uk/IJARMSS/June2015/2.pdf
Koo, K. J. (2021). The Differential benefits of reputed generalists ceos over tenure. 아태비즈니스연구, 12(4), 87-105. https://doi.org/10.32599/apjb.12.4.202112.87
Kuan, T. H., Li, C. S., & Chu, S. H. (2011). Cash holdings and corporate governance in family-controlled firms. Journal of Business Research, 64(7), 757–764. https://doi.org/10.1016/j.jbusres.2010.07.004
Kumpamool, C., & Chancharat, N. (2022). Does board composition influence working capital management? Evidence from Thailand. Corporate Governance: The International Journal of Business in Society, 22(6), 1178-1196. https://doi.org/10.1108/CG-10-2020-0468
Kyereboah-Coleman, A. (2008). Corporate governance and firm performance in Africa: A dynamic panel data analysis. Journal for Studies in Economics and Econometrics, 32(2), 1–24. https://doi.org/10.1080/10800379.2008.12106447
Lim, J., & Lee, S. C. (2019). Relationship between the characteristics of CEOs and Excess cash holdings of firms. Emerging Markets Finance and Trade, 55(5), 1069–1090. https://doi.org/10.1080/1540496X.2018.1518778
Liu, Y., & Mauer, D. C. (2011). Corporate cash holdings and CEO compensation incentives. Journal of Financial Economics, 102(1), 183–198. https://doi.org/10.1016/j.jfineco.2011.05.008
Magerakis, E., Gkillas, K., Tsagkanos, A., & Siriopoulos, C. (2020). Firm size does matter: New evidence on the determinants of cash holdings. Journal of Risk and Financial Management, 13(8), 163. http://dx.doi.org/10.3390/jrfm13080163
Mahmood, F., Han, D., Ali, N., Mubeen, R., & Shahzad, U. (2019). Moderating effects of firm size and leverage on the working capital finance–profitability relationship: evidence from China. Sustainability, 11(7), 2029. https://doi.org/10.3390/su11072029
Myers, S., C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575–592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
Narwal, K. P., & Jindal, S. (2018). Working capital management impact on corporate profitability relation with corporate governance: Evidence from Indian manufacturing sector. Journal of Commerce and Accounting Research, 7(3), 8-12. http://www.publishingindia.com/
Naz, M. A., Ali, R., Rehman, R. U., & Ntim, C. G. (2022). Corporate governance, working capital management, and firm performance: Some new insights from agency theory. Managerial and Decision Economics, 43(5), 1448–1461. https://doi.org/10.1002/mde.3466
Opler, T., Pinkowitz, L., Stulz, R. and Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52, 3–46. https://doi.org/https://doi.org/10.1016/S0304-405X(99)00003-3
Orens, R., & Reheul, A. M. (2013). Do CEO demographics explain cash holdings in SMEs? European Management Journal, 31(6), 549–563. https://doi.org/10.1016/j.emj.2013.01.003
Ozordi, E., Adetula, D. T., Eluyela, D. F., Aina, A., & Ogabi, M. A. (2019). Corporate dynamism and cash holding decision in listed manufacturing firms in Nigeria. Problems and Perspectives in Management, 17(4), 1–12. https://doi.org/10.21511/ppm.17(4).2019.01
Palombini, N. V. N., & Nakamura, W. T. (2012). Key factors in working capital management in the brazilian market. RAE Revista de Administracao de Empresas, 52(1), 55–69. https://doi.org/10.1590/S0034-75902012000100005
Paniagua, J., Rivelles, R., & Sapena, J. (2018). Corporate governance and financial performance: The role of ownership and board structure. Journal of Business Research, 89(February), 229–234. https://doi.org/10.1016/j.jbusres.2018.01.060
Santosuosso, P. (2015). How cash flow volatility affects debt financing and accounts payable. International Journal of Economics and Finance, 7(8). https://doi.org/10.5539/ijef.v7n8p138
Sathyamoorthi, C. R., Mbekomize, C. J., Mapharing, M., & Selinkie, P. (2018). The impact of corporate governance on working capital management efficiency: Evidence from the listed companies in the consumer services sector in Botswana. International Journal of Economics and Finance, 10(2), 135-149. https://doi.org/10.5539/ijef.v10n12p135
Shahid, M. N., Abbas, A., Latif, K., Attique, A., & Khalid, S. (2020). The mediating role of board size, philanthropy and working capital management between basic corporate governance factors and firm's performance. Journal of Asian Business and Economic Studies, 27(2), 135-151. https://doi.org/10.1108/JABES-07-2018-0050
Suherman, S., Usman, B., Mahfirah, T. F., & Vesta, R. (2021). Do female executives and CEO tenure matter for corporate cash holdings? Insight from a Southeast Asian country. Corporate Governance (Bingley), 21(5), 939–960. https://doi.org/10.1108/CG-07-2020-0290
Thuy, P. B. G., & Duc, v. h. (2013). corporate governance and firm’s performance: empirical Evidence from Vietnam. Journal of Economics Development, 218, 62–77. https://doi.org/10.24311/jed/2013.218.08
Wirianata, H., Viriany, & De Mayo, I., F. (2023). Corporate governance in cash management, net working capital, and cash holding. Jurnal Akuntansi, 27(1), 118–135. https://doi.org/10.24912/ja.v27i1.1246
Zariyawati, M. A., Annuar, M. N., & Pui-San, N. (2016). Working capital management determinants of small and large firms in Malaysia. International Journal of Economics and Management, 10(2), 365–377. http://www.ijem.upm.edu.my/vol10no2/(9)-VOL_10(2)2016_Zariyawati_Working%20Capital%20Management.......pdf
Zhang, Y., Zhou, J., & Zhou, N. (2007). Audit committee quality, auditor independence, and internal control weaknesses. Journal of Accounting and Public Policy, 26(3), 300–327. https://doi.org/10.1016/j.jaccpubpol.2007.03.001
Copyright
Copyright aims to protect the specific way the article has been written to describe an experiment and the results. Shirkah: Journal of Economics and Business is committed to its authors to protect and defend their work and their reputation and takes allegations of infringement, plagiarism, ethical disputes, and fraud very seriously. Automotive Experiences is published under the terms of the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0). Authors retain copyright and grant the journal right of first publication (online and print) with the work simultaneously. We use the restrictive license (non-commercial) as follows:
BY (attribution): Users are allowed to share, distribute and redistribute the published article in any medium or format, with an identification of the authors and its initial publication in this journal. Authors are encouraged to post and distribute their articles immediately after publication (e.g., institutional or public repositories, personal websites). Authors are allowed to enter into additional contractual arrangements for the non-exclusive distribution of the published and an acknowledgment of its initial publication in this journal.
NC (non-commercial): Users are not allowed to use the article commercially without the permission of the authors. Authors agree explicitly that the published article is indexed worldwide in databases, repositories and indexation services, even if these services operate on a commercial basis. Authors grant Shirkah: Journal of Economics and Business explicit the right to include the published articles in databases, repositories and indexation services. License
License to Publish
The non-commercial use of the article will be governed by the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0). The author hereby grants Shirkah: Journal of Economics and Business an exclusive publishing and distribution license in the manuscript include tables, illustrations or other material submitted for publication as part of the manuscript (the “Articleâ€) in print, electronic and all other media (whether now known or later developed), in any form, in all languages, throughout the world, for the full term of copyright, and the right to license others to do the same, effective when the article is accepted for publication. This license includes the right to enforce the rights granted hereunder against third parties.
Author's Warranties
The author warrants that the article is original, written by stated author/s, has not been published before, contains no unlawful statements, does not infringe the rights of others, is subject to copyright that is vested exclusively in the author and free of any third party rights, and that any necessary written permissions to quote from other sources have been obtained by the author(s).
User Rights
Under the Creative Commons Attribution-Non Commercial 4.0 International (CC BY-NC 4.0) license, the author(s) and users are free to share (copy and redistribute the material in any medium or format) and adapt (remix, transform, and build upon the material). Users must give appropriate credit, provide a link to the license, and indicate if changes were made.
Rights of Authors
Authors retain the following rights:
- Copyright, and other proprietary rights relating to the article, such as patent rights,
- The right to use the substance of the article in future own works, including lectures and books,
- The right to reproduce the article for own purposes, provided the copies are not offered for sale, and
- The right to self-archive the article.
Co-Authorship
If the article was prepared jointly with other authors, the signatory of this form warrants that he/she has been authorized by all co-authors to sign this agreement on their behalf, and agrees to inform his/her co-authors of the terms of this agreement.
Royalties
This agreement entitles the author to no royalties or other fees. To such extent as legally permissible, the author waives his or her right to collect royalties relative to the article in respect of any use of the article by Shirkah: Journal of Economics and Business or its sublicensee.
Miscellaneous
Shirkah: Journal of Economics and Business will publish the article (or have it published) in the Journal if the article’s editorial process is successfully completed and Shirkah: Journal of Economics and Business or its sublicensee has become obligated to have the article published. Shirkah: Journal of Economics and Business may conform the article to a style of punctuation, spelling, capitalization, and usage that it deems appropriate.