Does board composition influence working capital management? Evidence from Thailand

Abstract

Purpose

This study aims to investigate the influence of board composition on the working capital management (WCM) of Thai listed firms for the period 2010–2019.

Design/methodology/approach

Probit regression and two-step system generalized method of moments (GMM) are used to address this issue.

Findings

The results indicate that, while a larger board size causes a lower net working capital holding, it increases its efficiency. Firms with chief executive officer (CEO) duality adopt aggressive policies for their financing but avoid them for their investment to balance the risks and returns of implementing the working capital (WC) policy. Conversely, firms with higher board independence prefer to use conservative WC financing policies. The findings support using both the agency and stewardship theories.

Research limitations/implications

The authors focus on listed non-financial firms; therefore, the findings may not be generalizable to financial and private firms.

Practical implications

The findings provide implications for practitioners to focus more on board composition, as it is crucial for WCM. Furthermore, they should avoid applying a single theory in isolation, especially for CEO duality, as one theory is appropriate only for some policies. The authors also provide guidelines for policymakers and regulators to formulate strategies that support more board diversification in terms of size and independence, to enhance board efficiency.

Originality/value

To the best of the author’s knowledge, this study is the first to directly examine the influence of board composition on aggressive WC policies in Thailand.

Citation

Kumpamool, C. and Chancharat, N. (2022), "Does board composition influence working capital management? Evidence from Thailand", Corporate Governance, Vol. 22 No. 6, pp. 1178-1196. https://doi.org/10.1108/CG-10-2020-0468