Impact of the global financial crisis and the COVID-19 pandemic on working capital management: evidence from the Baltic public companies

This paper examines the impact of the Global Financial Crisis (GFC, 2008) and the COVID-19 pandemic on working capital management (WCM) in Baltic public companies. We measure WCM by the cash conversion cycle (CCC) and its components, apply the difference GMM (Arellano-Bond estimator), and use balanced panel data. The findings revealed that Baltic public companies did not experience longer CCC, slower accounts receivable and inventory turnovers, neither during the GFC 2008 nor the COVID-19 pandemic. Prolonged financial crises and pandemic periods gave companies sufficient time to adjust their WCM to new conditions and enabled governments to implement liquidity-support measures. In addition, a statistically significant difference in WCM was observed between the two event periods. CCC was longer, and accounts receivable and accounts payable turnovers were slower during the GFC 2008 than during the COVID-19 pandemic. Meanwhile, inventory turnover was slower during the COVID-19 pandemic. The findings supported the liquidity preference theory. They are valuable for companies operating in small open-market economies as they can adopt WCM strategies to maintain a stronger financial position and improve liquidity.