TY - JOUR

T1 - The Moderating Effect of Internal Audit Quality on the Relationship between Working Capital Management and Firm Performance: Evidence from the United Arab Emirates

AU - El-Bannany, Magdi

AU - Abdul Hamid, Mohamad

AU - Bayou, Mohamed

AU - Elkelish, Walaa

AU - Lasyoud, Alhashmi

AU - Simon, Sunday

AU - Hussainey, Khaled

N1 - publication date on journal is 2022.

PY - 2023/4/19

Y1 - 2023/4/19

N2 - The study investigates the moderating effect of internal audit quality (IAQ) on the relationship between working capital management (WCM) and firm performance and examines the quadratic relationship between WCM and firm performance. Using a sample of 31 large firms listed on the UAE stock exchange from 2007 to 2017, the study finds that days sales outstanding, days inventory outstanding, and cash conversion efficiency have a positive relationship with firm performance while days payment outstanding and cash conversion cycle have a negative relationship with firm performance. The results also reveal that IAQ significantly moderates the observed relationship between WCM and firm performance. Further analysis revealed that the relationship between WCM and firm performance in UAE is quadratic or non-linear. These findings have theoretical and practical implications, as they suggest that policies for improving working capital metrics should also consider internal audit recommendations in response to firm performance. The reason is that a high-IAQ provides insight that will guide WCM decision making. This is in addition to maintaining an optimal level of investment in WCM.

AB - The study investigates the moderating effect of internal audit quality (IAQ) on the relationship between working capital management (WCM) and firm performance and examines the quadratic relationship between WCM and firm performance. Using a sample of 31 large firms listed on the UAE stock exchange from 2007 to 2017, the study finds that days sales outstanding, days inventory outstanding, and cash conversion efficiency have a positive relationship with firm performance while days payment outstanding and cash conversion cycle have a negative relationship with firm performance. The results also reveal that IAQ significantly moderates the observed relationship between WCM and firm performance. Further analysis revealed that the relationship between WCM and firm performance in UAE is quadratic or non-linear. These findings have theoretical and practical implications, as they suggest that policies for improving working capital metrics should also consider internal audit recommendations in response to firm performance. The reason is that a high-IAQ provides insight that will guide WCM decision making. This is in addition to maintaining an optimal level of investment in WCM.

U2 - 10.1504/IJAAPE.2022.130395

DO - 10.1504/IJAAPE.2022.130395

M3 - Article

VL - 18

SP - 349

EP - 373

JO - International Journal of Accounting, Auditing and Performance Evaluation

JF - International Journal of Accounting, Auditing and Performance Evaluation

SN - 1740-8008

IS - 3-4

ER -