WORKING CAPITAL MANAGEMENT AND SME FINANCIAL PERFORMANCE: A META-ANALYTIC SYNTHESIS

Abstract

Working capital management (WCM) is widely regarded as a determinant of profitability for small and medium enterprises (SMEs), yet the empirical evidence is inconsistent, with negative, positive, and nonlinear associations reported. This study systematically reviews and meta-analyses SME evidence published between 2020 and 2025. A documented search of the Semantic Scholar Academic Graph and the Directory of Open Access Journals, reported according to PRISMA 2020, identified 205 records; 17 studies met the eligibility criteria and 15 provided recoverable effect sizes. Correlations were pooled with a random-effects model after Fisher's z transformation, supplemented by Hartung–Knapp confidence intervals, prediction intervals, and subgroup, leave-one-out, and small-study analyses. Across 14 studies, a longer cash conversion cycle is associated with lower profitability (r = −0.137, 95% CI [−0.203, −0.070]; Hartung–Knapp p = 0.004), a modest association equivalent to about 2% of the variance in profitability. Days inventory outstanding shows a similar association (r = −0.117), whereas the associations for receivable and payable periods are small and not robust. Heterogeneity is substantial (I² ≈ 95%), the prediction interval for the cash conversion cycle includes positive values, and neither region nor effect-size type explains the variation. Many excluded studies, including every Indonesian study retrieved, relied on perception scales, monetary levels, or qualitative designs rather than period-based ratios, so Indonesian SMEs remain unrepresented in the quantitative evidence. The findings support optimising, rather than simply minimising, working capital within each firm's operating context, and they identify measurement practice as a priority for future SME research.