Roles of Working Capital Management and Corporate Tax Avoidance on Firm Performance Amid Economic Policy Uncertainty
DOI:
https://doi.org/10.22452/IJIE.vol17no4.3Keywords:
Working capital management, Corporate tax avoidance, Firm performance, Economic policy uncertaintyAbstract
This study examines the impact of global economic policy uncertainty
(GEPU) on working capital management (WCM) and, in turn, on firm performance.
This study also investigates the impact of the interaction between corporate tax
avoidance (CTA) and WCM on overall firm performance. Utilising a dynamic panel
data methodology with a two-step generalized method of moments (GMM) approach,
the analysis encompasses a robust sample of 7,645 firms from the United States (US),
1,107 from the United Kingdom (UK), 681 from Germany, and 4,403 from China
spanning the period of 2006 to 2020. This study reveals a significant negative correlation
between GEPU and the cash conversion cycle (CCC). Additionally, the interaction effects
between CCC and GEPU demonstrate a significant positive association with return on
assets (ROA). Remarkably, the interaction between CCC and CTA consistently exerts
a significant and positive impact on ROA across firms in all countries. Upon closer
examination of individual countries, a distinct pattern emerges: a negative impact is
discerned for US firms, in contrast to the positive impact observed for firms in the UK,
Germany, and China. Therefore, the holistic optimisation of CCC and CTA presents
significant potential for improved cash flow efficiency, financial stability, and enhanced
firm performance.
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