Working capital management: a comparative study between the practices of Brazilian and UK firms

Abstract

This study investigates the determinants of the ways to conduct working capital practices in micro and small enterprises (MSEs), using the foundations of firm life cycle, resource based view, trade credit, agency and transaction cost theories. The data obtained from a survey with 447 MSEs from the states of Minas Gerais and São Paulo were analyzed using multivariate techniques, and four styles of working capital management were identified. These styles may be explained by firm characteristics such as age, size and profitability. The results were compared to the ones obtained in a similar study with UK firms (Howorth & Westhead, 2003), and the evidence shows important differences: (a) Brazilian firms revise most working capital management routines more frequently than their counterparts in the UK; (b) Brazilian MSEs supply less trade credit than their British counterparts. These differences may be explained, at least in part, by the higher cost of financing faced by Brazilian firms compared to UK firms.

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