Determinants of working capital: empirical evidence on manufacturing SMEs

Purpose This study seeks to analyse the determinants of working capital of manufacturing small and medium-sized enterprises (SMEs), particularly the effect of the probability of financial distress on working capital. Design/methodology/approach Using panel data models, the authors analyse a sample of 3994 manufacturing SMEs for the period 2011–2017. Findings The results suggest that SMEs pursue conservative working capital management to avoid the failure to fulfil the commitments with creditors. Also, the positive impact of the probability of financial distress on SME working capital suggests that SMEs exposed to a higher probability of bankruptcy invest more in working capital to avoid the risk of default and financing imbalance. Originality/value The novelty of this study is to extend the consequences of aggressive or conservative working capital management by analysing the probability of financial distress on working capital.