Over the past few decades, the corporate finance literature has progressively reevaluated short-term financial decisions. Starting from Smith's seminal paper [1], several scholars have verified that such decisions can have a fundamental impact on corporate profitability and risk, significantly influencing the survival and development conditions of firms [2-9].

As highlighted by the literature, the management of current assets and liabilities must be adequate to the specific characteristics of the company and to the operating context in which it carries out its business [10-13].

In this regard, the literature has shown that it is difficult to identify the optimal level of working capital, as it is influenced by the characteristics of the company and the dynamics of the market and the sector, which are highly variable [14-16].

Working capital management is essential for businesses of any size, but it becomes essential for small and medium-sized businesses. These firms are in fact often characterized by resource constraints that can significantly affect their economic and financial equilibrium conditions [7,17-22].

These constraints are even stronger in emerging economies, where capital markets are underdeveloped and the system is mainly focused on bank credit [21,23-25]. As a result, companies in these economies are often forced to use internal sources to finance their operating cycle [26- 29].

Furthermore, the constraints just outlined can be accentuated by the lack of managerial skills and the lack of adequately qualified human resources [30].

In the context briefly outlined, the most proactive SMEs have introduced quality management tools and techniques to improve business processes and, at the same time, to control the variables that influence the size of working capital. In this perspective, quality management systems can improve business processes and promote organizational growth [20,31-34]. However, the introduction and implementation of quality management systems require skills often absent in SMEs, requiring additional costs that discourage entrepreneurs [30]. The issue of working capital management, like that of quality management systems, has been extensively investigated.

However, these issues have rarely been the subject of a joint study. Therefore, this paper intends to study the relationship between quality management systems and working capital management, focusing on an emerging economy, such as the Brazilian one. To this end, we used a sample of Brazilian manufacturing SMEs chosen using a stratified random sampling technique [35]. The data was collected through a questionnaire submitted to 500 companies. At the end of the survey, 122 companies replied to the questionnaire. The analysis results showed that companies that use quality management systems have more efficient management of working capital. The results of this research suggest that quality management systems positively impact the management of working capital in the context analyzed, helping to form the literature on this topic. Furthermore, the results can be useful in stimulating SME entrepreneurs to use these tools. Her paper is organized as follows. The second section analyzes the reference literature, while the third describes the research design and the methodology followed. The fourth section shows the results, while the last section contains the concluding remarks.

Literature Review

The theoretical debate and empirical evidence have shown the difficulties in identifying an optimal level of working capital valid for each type of company and economic context.

Some authors have suggested that high investment in working capital can positively affect the company's profitability, allowing it to increase sales, expand the customer base and reduce procurement costs while reducing its reliance on fluctuations in material prices [4, 10,21, 36-40].

On the contrary, other authors have suggested that excessive investment in working capital can reduce the company's profitability, increasing the financial requirement, the rigidity and consequently the risk of financial difficulties [41-44]. In this perspective, other scholars have suggested that optimal working capital management requires a trade-off between risk and efficiency [3,45]. Finally, other scholars have found a non-linear relationship between working capital and performance [28,46,47].

In the context briefly outlined, quality management systems can represent a crucial factor in managing working capital, as they involve the entire company and its stakeholders in improving business processes [48]. Several studies have shown that the introduction of quality management practices produces positive effects on organizational, economic and financial performance [34,49-53].

The increase in competitive dynamics, the diffusion of technology and the need for qualified human resources have expanded the importance of quality management practices to improve the company's competitive capacity.

In the context briefly outlined, some authors have shown that quality management systems can improve financial management efficiency, favouring the optimization of the individual components of working capital.

However, several types of research have shown that introducing such management systems is particularly complex for SMEs in emerging economies, also due to the specific characteristics of the reference environmental context [54,55].

Research Design and Sample Characteristics

The study investigates the impact of quality management systems on working capital management methods, focusing on Brazilian manufacturing SMEs.

The sample was selected with a stratified technique based on economic criteria, making it possible to consider companies with different characteristics in terms of turnover, investments and number of employees. The initial 

sample consisted of 500 companies.

The data were collected through a questionnaire administered to all the companies in the sample. The questionnaire was structured in two sections:

Table 1: General sample information (N = 122)

(*) US Dollars

Table 2: Quality Management Systems (QMS)

Table 3: Motivations

Table 4: Main Indicators

(*) p-value (Mann–Whitney test)

Table 5: Turnover Ratios

(*) p-value (Mann–Whitney test)

• The first was intended to collect general data on the company and verify the possible presence of quality management systems

• The second was instead intended to collect information on the individual elements that make up the working capital

The period under observation is three years and refers to 2016-2018. Data was collected through face-to-face interviews with entrepreneurs, using properly trained interviewers. Overall, 122 companies participated in the research by the deadline and were analyzed. Table 1 shows the main characteristics of the sample of SMEs analyzed.

As can be seen from the table, the prevalence of the companies interviewed has a limited number of shareholders, has been established for over 10 years (75.7%) and is governed by male managers. Most companies have fewer than 50 employees, a turnover of less than $ 50 million and a profit in the past three years.

Tables 2 and 3 show the companies that have introduced quality management systems and the main reasons that hinder the introduction of such systems.

Only a part of the companies interviewed use quality management systems. The main reasons for the failure to adopt these systems are the high costs and difficulties associated with the collection and organization of data.

Before analyzing the impact of quality management systems on working capital management, we divided the companies into two groups. The first group, indicated with the number 1, includes companies that do not use quality management systems. The second group, indicated by number 2, includes companies that use quality management systems.

For each group, we measured the main components of working capital indicators using a statistical matrix methodology. Furthermore, we found it appropriate to use the non-parametric Mann-Whitney test due to the significant deviations we recorded in some indicators.

Table 4 shows the Current Liquidity Ratio (CLR), the Working Capital Level (WCL), the operating cycle (WCC, credit collection period + inventory turnover - payment period Debt Period) and the Cash Conversion Cycle (CCC, Pending Inventory Days + Pending Sale Days + Pending Payment Days).

The analysis results show that the manufacturing companies examined have a liquidity index and a positive net working capital. However, the operating cycle analysis shows that group 1 firms have a short-term excess of assets relative to their financial needs. Indeed, group 1 firms have excess short-term assets. The results relating to the Cash Conversion Cycle (CCC) show that Group 2 companies, which use quality management systems, have more efficient management of working capital, as they can transform their investments into cash over a period of time shorter.

Furthermore, we assessed the impact of the single determinants on the working capital of the companies, calculating (in days) the turnover ratios of credits (ART, (credits *365)/turnover); Accounts Payable (APC, (Accounts Payable x 365)/Cost of Goods Sold) and Inventory (INV, the average number of days companies hold inventory).

The analysis shows that Group 2 companies can collect receivables faster and can pay their debts more quickly. Furthermore, the management of inventories is also strongly influenced by the presence or absence of quality management systems.

This paper studies the impact of quality management systems on working capital management of Brazilian manufacturing SMEs. The sample of companies analyzed was selected with a stratified sampling technique based on economic criteria. The data were collected through a questionnaire administered through a face-to-face interview and refer to a time horizon of three years (2016-2018). This approach made it possible to obtain a satisfactory response level and improved the reliability of the data collected. Overall, 122 manufacturing companies participated in the research. All companies have a liquidity index and positive net working capital. However, companies that do not use quality management systems have a short-term surplus of assets over their financial needs. The results suggest that companies using quality management systems reap significant benefits for their short-term financial management, as they can convert their investments into cash flows faster than other companies. In addition, these companies can pay suppliers in a shorter time. This circumstance suggests that these companies are also able to obtain discounts on supplies. This research provides further empirical evidence of the positive impact that quality management systems have on short-term financial management, enriching the literature on the topic. Furthermore, the results can help entrepreneurs better understand the benefits that can result from the introduction of quality management systems.

1.  

2. Smith, K. "Profitability versus liquidity tradeoffs in working capital management." Readings on the Management of Working Capital, edited by K.V. Smith, West Publishing Company, 1980, pp. 549–562.

3. Kim, Y.H. and K.H. Chung. "An integrated evaluation of investment in inventory and credit: A cash flow approach." Journal of Business Finance and Accounting, vol. 17, no. 3, 1990, pp. 381–389.

4. Shin, H.H. and L. Soenen. "Efficiency of working capital and corporate profitability." Financial Practice and Education, vol. 8, no. 2, 1998, pp. 37–45.

5. Deloof, M. "Does working capital management affect profitability of belgian firms?" Journal of Business Finance and Accounting, vol. 30, no. 4, 2003, pp. 573–587.

6. Mannetta, E.W. et al. "Working capital management and performance: an empirical study." Academic Conference on Risk Management and Complexity, 2014.

7. Chalmers, D.K. et al. "Working Capital Management (WCM) and performance of SMEs: Evidence from India." International Journal of Business and Social Science, vol. 11, no. 7, 2020, pp. 57–63.

8. Alvarez, T. et al. "Working capital management and profitability: Evidence from an emergent economy." International Journal of Advances in Management and Economics, vol. 11, no. 1, 2021, pp. 32–39.

9. Chen, Y. et al. "Determinants of leverage in emerging markets: empirical evidence." International Journal of Economics and Financial Issues, vol. 11, no. 2, 2021, pp. 40–46.

10. Hernandez, S. et al. "Working capital determinants and profitability: empirical evidence from an emergent economy." IAR Journal of Business Management, vol. 2, no. 2, 2021, pp. 40–46.

11. Chen, Y. et al. "Working capital management and quality management systems: Evidence from an emerging economy." International Journal of Business Management and Economic Research, vol. 11, no. 4, 2020, pp. 1861–1868.

12. Diaz, E. and M. Vazquez. "Relationship between WCM and Profitability: First empirical evidence from an emergent economy." DIAF, 2019.

13. Sensini, L. and M. Vazquez. "Effects of working capital management on SME profitability: Evidence from an emerging economy." International Journal of Business and Management, vol. 16, no. 4, 2021, pp. 85–95.

14. Shan, A. et al. "Effects of Working Capital Management on Firm Performance." DIAF, 2019, pp. 87–99.

15. Campos, A. et al. "Efficiency ratio and firm performance: evidence from Italy." IFBE, 2015.

16. Chen, Y. et al. "Relationship between liquidity and profitability: evidence from an emergent market." Entrepreneurship and Performance in Emerging Economies, edited by E. Diaz, S. Hernandez, J. Silva and M. Vazquez, Malta Univ. Press, 2019, pp. 297–311.

17. Arnaldi, A. et al. "Working capital management and profitability: empirical evidence." International Journal of Business Management and Economic Research, vol. 12, no. 2, 2021, pp. 1911–1917.

18. Stiglitz, J. and A. Weiss. "Credit rationing in markets with imperfect information." American Economic Review, vol. 71, 1981, pp. 393–410.

19. Cohen, W. et al. "The Relevance of Tax Information in Financial Statement." International Conference on Accounting, Finance and Risk Management Perspective, 2013, pp. 141–166.

20. Ukaegbu, B. "The significance of working capital management in determining firm profitability: Evidence from developing economies in Africa." Research in International Business and Finance, vol. 31, 2014, pp. 1–16.

21. Chen, J. and L. Sensini. "Net working capital, cash flow and performance of smes: an exploratory study." Small and Medium Size Enterprises: Governance, Management and Performance, Malta Univ. Press, 2014, pp. 296–315.

22. Sanchez, J.A. and L. Sensini. "Small Firms and demand for credit: evidence from Europe." ICAFR, 2017, pp. 124–144.

23. Sensini, L. "Working capital management and performance: evidence from Italian SMEs." International Journal of Business Management and Economic Research (IJBMER), vol. 11, no. 2, 2020, pp. 1749–1755.

24. Amendola, A. et al. Fiscal Incentives and Firm Performance: Evidence from the Dominican Republic. Policy Research Working Paper 8382, World Bank Group Macroeconomics, Trade and Investment Global Practice, 2018.

25. Chauhan, G.S. and P. Banerjee. "Financial constraints and optimal working capital: Evidence from an emerging market." International Journal of Managerial Finance, vol. 14, no. 1, 2018, pp. 37–53.

26. Chalmers, D.K. et al. "Effects of macroeconomics impulses on working capital efficiency." DIAF, 2018, pp. 221–235.

27. Allen, F. et al. "Financing firms in India." Journal of Financial Intermediation, vol. 21, no. 3, 2012, pp. 409–445.

28. Sensini, L. "Capital structure determinants in italian smes: an empirical study." ICAFR, 2017, pp. 124–144.

29. Wasiuzzaman, S. "Working capital and firm value in an emerging market." International Journal of Managerial Finance, vol. 11, no. 1, 2015, pp. 60–79.

30. Das, A. et al. "A Contingent view of quality management: the impact of international competition on quality." Decision Science, vol. 31, no. 3, 2000, pp. 649–690.

31. Diaz, E. and L. Sensini. "Quality management practices, innovation and profitability of semes: evidence from Argentina." International Business Management, vol. 14, no. 9, 2020, pp. 328–336.

32. Kureshi, N.I. and R. Mann. "Quality management practices of SME in developing countries: A survey of manufacturing SME in Pakistan." Journal of Quality and Technology Management, vol. 5, no. 1, 2009, pp. 63–89.

33. Della Porta, M. and E. Diaz. "The impact of quality management practices on performance: Empirical evidence." ICAFR, 2016.

34. Fonseca, L. and P. Domingues. "Empirical research of the ISO 9001:2015 Transition process in portugal: motivations, benefits and success factors." Quality Innovation Prosperity, vol. 22, 2018, pp. 16–45.

35. Hong, J. et al. "The Effect of supply chain quality management practices and capabilities on operational and innovation performance: evidence from chinese manufacturers." International Journal of Production Economics, vol. 212, 2019, pp. 227–235.

36. Amendola, A. et al. "Corporate governance, investment, profitability and insolvency risk: Evidence from Italy." Advances in Management and Applied Economics, vol. 10, no. 4, 2020, pp. 185–202.

37. Aktas, N. et al. "Is working capital management value-enhancing? Evidence from firm performance and investments." Journal of Corporate Finance, vol. 30, 2015, pp. 98–113.

38. Petersen, M.A. and R.G. Rajan. "Trade Credit: Theories and evidence." Review of Financial Studies, vol. 10, no. 3, 1997, pp. 661–691.

39. Wilner, B.S. "The exploitation of relationship in financial distress: The case of trade credit." The Journal of Finance, vol. 55, no. 1, 2000, pp. 153–178.

40. Zariyawati, M.A. et al. "Working capital management and corporate performance: case of Malaysia." Journal of Modern Accounting and Auditing, vol. 5, no. 11, 2009, pp. 47–54.

41. Chalmers, D.K. et al. "Impact of working capital management policies on corporate performance." ICEFR, 2014.

42. Hughes, C. et al. "Effective strategic planning in small and medium sized firms: empirical evidence." International Conference on Accounting, Finance and Risk Management Perspective, 2013.

43. Campos, A. et al. "Predicting financial distress of SMEs: A case study." ICAMR, 2014.

44. Sensini, L. "An empirical analysis of financially distressed Italian companies." International Business Research, vol. 9, no. 10, 2016, pp. 75–85.

45. Della Porta, M. et al. "Financial constraints and optimal working capital: Evidence from an emerging economy." DIAF, 2016.

46. Fernandez, L. et al. "Working capital management and firm profitability: Evidence from developing economies." Small and Medium Size Enterprises: Governance, Management and Performance, AA.VV., 2014.

47. Opler, T. et al. "The determinants and implications of corporate cash holdings." Journal of Financial Economics, vol. 52, 1999, pp. 3–46.

48. Mueller, A. and B. Novak. "Working capital determinants and profitability: Empirical evidence." Academic Conference on Risk Management and Complexity, 2014.

49. Bamford, D.R. and R.W. Greatbanks. "The use of quality management tools and techniques: A study of application in everyday situations." International Journal of Quality and Reliability Management, vol. 22, no. 4, 2005, pp. 376–392.

50. Wong, C. et al. "The performance of contingencies of supply chain information integration: The roles of product and market complexity." International Journal of Production Economics, vol. 165, 2015, pp. 1–11.

51. Wu, L. et al. "The Impact of integrated practices of lean, green and social management systems on firm sustainability performance: evidence from Chinese fashion auto-parts suppliers." Sustainability, vol. 7, 2015, pp. 3838–3858.

52. Zhou, H. and W.C. Benton. "Supply chain practice and information sharing." Journal of Operations Management, vol. 25, 2007, pp. 1348–1365.

53. Sadikoglu, E. and C. Zehir. "Investigating the effects of innovation and employee performance on the relationship between total quality management practices and firm performance: An empirical study of Turkish firms." International Journal of Production Economics, vol. 127, no. 1, 2010, pp. 13–26.

54. Chalmers, D.K. et al. "RandD and internationalization: Effect on the performance of SMEs." International Journal of Advances in Management and Economics, vol. 9, no. 3, 2020, pp. 39–48.

55. Ihua, U.B. "SMEs Key Failure-Factors: A comparison between the United Kingdom and Nigeria." Journal of Social Sciences, vol. 18, no. 3, 2009, pp. 199–207.

56. Ratnawati, S.B.E. et al. "The role of SMEs’ innovation and learning orientation in mediating the effect of CSR programme on SMEs’ performance and competitive advantage." Global Business Review, vol. 19, no. 3 Suppl., 2018, pp. S21–S38.