Impact of Working Capital Management on Environmental Performance of Manufacturing Firms in Sub-Saharan Africa: The Roles of Capital Expenditure and Capital Structure

Abstract

This study investigated the impact of working capital management (WCM) on the environmental performance (EP) of manufacturing firms in Sub-Saharan Africa (SSA), as well as the roles of capital expenditure and capital structure. The research is conducted in response to the growing awareness of the impact of climate change on firms and their operations, as well as the concern of international organizations, accounting bodies, and practitioners regarding the necessity of prioritizing environmental sustainability. In this regard, legitimacy, stakeholders, and rational choice theories were used to underpin the research. A quantitative research approach and descriptive survey design were employed to determine the relationship between WCM and EP. The study used secondary data from 114 manufacturing firms listed in Sub-Saharan Africa from 2013 to 2022. Stata 18 was employed to conduct the descriptive and inferential statistics analysis. The study utilized the fixed effect (FE) and random effect (RE) estimators for the regression analysis, with FE serving as the principal estimator and RE serving as the robustness measure. These findings demonstrate that firms that effectively manage their working capital exhibit superior environmental performance. This performance is further enhanced by the appropriate balance of capital and optimal capital investment. The findings of the study suggest that policymakers and regulators should improve their comprehension of the necessity for companies to engage in sustainable activities and practices and to report on them. The findings suggest that corporate environmental management has long-standing advantages, and it also suggests that more comprehensive environmental management ideologies could be advantageous for the overall environmental objectives of companies.