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.
|Journal||International Journal of Accounting, Auditing and Performance Evaluation|
|Publication status||Accepted/In press - 10 Sep 2022|