Behavior of small and medium shipping enterprises’ working capital management: moderating role of firm-specific characteristics in times of crises and geopolitical risk

This study examined the relationship between working capital management and the profitability of small and medium enterprises (SMEs) in the shipping industry, particularly during crises and geopolitical uncertainty, as well as the moderating effects of firm-specific characteristics and macroeconomic factors. We used firm-level data from Thailand’s shipping SMEs from 2001 to 2021 and a dynamic panel Generalized Method of Moments (GMM) approach. We found a nonlinear and negative relationship between working capital and profitability for all of the study’s samples. Shipping SMEs tended to adopt aggressive working capital policies during the global financial crisis, whereas they were likely to use conservative policies during the 2016–2017 shipping market turmoil, according to the separate analysis. The 2016–2017 shipping market turmoil negatively impacted firms’ profitability, albeit mitigated by sales growth. Our findings indicated that the impact of working capital management on profitability was more pronounced during the global financial crisis compared to the shipping industry turbulence observed in 2016–2017. We also discovered that, in the presence of China’s geopolitical risk, firms were likely to enhance their working capital efficiency and mitigate an adverse impact on firm performance with their financial leverage and firm size. Additionally, financially constrained firms exhibited an inverted U-shaped relationship between working capital and profitability. To maximize firms’ profitability, management should pay attention to their working capital management and attempt to maintain the optimum level of working capital. Moreover, management should consider working capital as an essential source of financing, especially for financially constrained firms. The findings shed light on the working capital management decisions made by shipping SMEs in the emerging market.