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Why some small businesses ignore austere working capital management routines

Laura Aseru Orobia (Department of Entrepreneurship, Makerere University Business School, Kampala, Uganda)
Kesseven Padachi (School of Accounting, Finance and Economics, University of Technology, La Tour Koenig, Pointe, Mauritius)
John C. Munene (Graduate & Research Centre, Makerere University Business School (MUBS), Kampala, Uganda)

Journal of Accounting in Emerging Economies

ISSN: 2042-1168

Article publication date: 3 May 2016

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Abstract

Purpose

The purpose of this paper is to investigate factors explaining take-up rate of working capital management routines in small-scale businesses.

Design/methodology/approach

A cross-sectional survey research was employed using a sample of 450 small-scale businesses in the central business district of Kampala, Uganda. Common working capital management routines and activity rates were analyzed using descriptive statistics. While binary logistic regression analysis was conducted to discriminate between businesses that engage in working capital management frequently and those that do so less frequently.

Findings

The results show that on average, the most frequently performed routines relate to safeguarding cash and inventory, and credit risk assessment. Payment management routines are least performed. Second, business size, perceived usefulness and attitude explain high take-up rate of working capital management routines in small-scale businesses. Business age, level of education and financial management training are inconsequential in determining the likelihood to undertake working capital management frequently.

Research limitations/implications

Paucity of studies world over on the input perspective of working capital management limited comparison of the findings with previous research. Future studies should be conducted to confirm the results.

Practical implications

The study findings imply that policy makers should develop work-based training programs that take into account the business size effect.

Originality/value

This study contributes to existing working capital management literature by explaining activity rate in a developing country perspective.

Keywords

Acknowledgements

The authors are grateful to the respondents who participated in the interviews, the peers as well as the two anonymous reviewers for their valuable suggestions and comments.

Citation

Orobia, L.A., Padachi, K. and Munene, J.C. (2016), "Why some small businesses ignore austere working capital management routines", Journal of Accounting in Emerging Economies, Vol. 6 No. 2, pp. 94-110. https://doi.org/10.1108/JAEE-08-2013-0039

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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