Advancing environmental performance in emerging economies: the roles of working capital management and capital expenditure

This study examines the impact of working capital management (WCM) on environmental performance in the manufacturing sector of Sub-Saharan Africa, with a focus on the moderating role of capital expenditure. Using panel data consisting of 1,032 firm-year observations between 2013 and 2022, the study examines how net liquidity balance, working capital requirements, and cash conversion cycles impact environmental outcomes. The study adopts legitimacy, stakeholder, and rational choice theories to explain firms’ behavior. It applies fixed and random effects models, along with instrumental variable techniques such as two-stage least squares (IV-2SLS), to address potential endogeneity. Findings reveal that the net liquidity balance has a negative impact on environmental performance, while working capital requirements and cash conversion cycles exhibit a positive relationship with it. Capital expenditure is found to significantly moderate these relationships, enabling firms to pursue sustainability objectives without compromising liquidity. These results underscore the importance of integrating financial and environmental strategies, particularly in resource-constrained regions. The study contributes to the literature by exploring the intersection of financial management and environmental sustainability, offering valuable insights for policymakers and corporate leaders in emerging economies seeking to align operational efficiency with sustainable development goals.