The impact of health pandemic on WCM: Evidence from the UK

The primary purpose of this exploratory research was to provide evidence of the impact of COVID-19 financial crisis on the working capital management of UK micro, small and medium sized enterprises (MSMEs).The secondary aim was to provide insights into micro-, small, and medium- sized enterprises’(MSMEs) use of management accounting techniques. Suchorganisations were purposely selected as the subject of this study because they face challenges (even in times of general economic prosperity, owing to their small profit margins) in maintaining an effective WCM policy, which involves managing and controlling cashflow, risks, opportunity costs, and expected returns. Understanding how the COVID-19 financial crisis has impacted UK MSMEs cannot be understated, as policymakers urgently seek evidence to shape their agenda to support this vital sector. The study employed mixed methodology by collecting both quantitative and qualitative data. The empirical data were obtained from a survey conducted among 150 micro-, small, and medium-sized UK businesses and a number of follow-up interviews. A contingency approach was adopted, and structural equation modelling was applied to analyse the data, using a Likert or ordinal scale of 1 to 5 to test the hypotheses. The empirical results indicate that the COVID-19 financial crisis has negatively impacted both the WCM, and cash flow/liquidity of UK MSMEs measured through both observed and unobserved/latent variables. The causes of these negative impacts are reduced customer demand (market channel) and the anxiety of a positive economic outlook (emotional channel). The research contributes to both knowledge and literature in the field, as no previous studies have provided such evidence in the UK.