Title: The moderating effect of internal audit quality on the relationship between working capital management and firm performance: evidence from UAE

Authors: Magdi Ahmed Fathi El-Bannany; Mohamad Ali Abdul Hamid; Mohamed Salem M.S. Bayou; Walaa Wahid Elkelish; Alhashmi Aboubaker Lasyoud; Sunday Simon; Khaled Hussainey

Addresses: College of Business Administration, Umm Al Quwain University, Umm Al Quwain, 356, UAE; Faculty of Business, Department of Accounting and Auditing, Ain Shams University, Cairo, 11566, Egypt ' Putra Business School, UPM, 43400, Serdang, Malaysia ' Accounting and Finance Department, American University of Ras Al Khaimah, UAE ' Department of Accounting, College of Business Administration, University of Sharjah, P.O .Box 27272, Sharjah, UAE ' Faculty of Business Law and Digital Technologies, Accounting & Finance, Solent Business School, Southampton Solent University, Southampton, SO14 0YN, UK ' Department of Accounting, Kogi State University, Anyigba, Nigeria ' Faculty of Business and Law, Accounting and Financial Management, Portsmouth Business School, University of Portsmouth, Portsmouth, PO1 3DE, UK

Abstract: 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.

Keywords: working capital management; firm performance; internal audit quality; UAE.

DOI: 10.1504/IJAAPE.2022.130395

International Journal of Accounting, Auditing and Performance Evaluation, 2022 Vol.18 No.3/4, pp.349 - 373

Received: 21 Oct 2020
Accepted: 10 Sep 2021

Published online: 19 Apr 2023 *

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