The Effects of Working Capital Management on Firms’ Efficiency: Case of Turkish and Zimbabwean Commercial Banks.

Abstract

This research studies management of working capital and its impact on commercial bank efficiency in Zimbabwe and Turkey. The study examined the financial statements of 10 banks from each country between 2009 and 2022. The research evaluated performance of banks using return on asset (ROA) as well as return on equity (ROE) as efficiency indicators. Working capital was assessed through the current ratio, current ratio, and total cash ratio, while bank size and leverage were considered as control variables. Correlation analysis, estimation equations, and regression models were used to examine the data, which included pooled cross-sectional and time series data, using SPSS (version 20.0). The data demonstrated a favourable and substantial association between ROE and the current ratio, demonstrating that adequate management of working capital has a beneficial impact on the banks’ profitability. A negative correlation, in contrast, between current ratio and ROE was noted, implying a balance of profitability and liquidity. Furthermore, no statistically significant association was seen between cash payment ability, total cash ratio, and ROA. However, a significant negative correlation was identified between the current ratio and ROA. Comparing the two countries, Turkish banks demonstrate superior liquidity management, potentially attributed to their adherence to the Basel III reform guidelines. The study recommends that Zimbabwean banks adopt similar measures to enhance their competitiveness in the international banking sector. In conclusion, the research emphasises the significance of good management of working capital in maximising bank efficiency. The findings provide valuable insights for policymakers and practitioners in the banking industry, urging them to implement liquidity management strategies for sustained success.