Net working capital responses of small and medium enterprises listed on the alternative exchange during a financial crisis

Abstract

Orientation: The coronavirus disease 2019 (COVID-19) pandemic presented a severe liquidity shock that forced small and medium enterprises (SMEs) to adapt their working capital management (WCM) strategies. Understanding these responses is vital to assessing SME resilience in financial crises.
Research purpose: The purpose of this study was to evaluate how SMEs, listed on the Johannesburg Stock Exchange’s Alternative Exchange (AltX), adjusted their net working capital (NWC) policies in response to the financial crises caused by the COVID-19 pandemic.
Motivation for the study: While global literature has examined liquidity management during crises, limited evidence exists on how listed SMEs in emerging markets, particularly in South Africa, adapted their NWC in response to systemic shocks. The study integrates contingency theory, the resource-based view (RBV) and liquidity preference theory to explain company-level heterogeneity in financial adaptation.
Research approach/design and method: A quantitative archival design was used. Secondary data from SMEs listed on the AltX covering 2017 to 2022 were analysed using the linear mixed model (LMM), the Wilcoxon signed-rank test, and descriptive statistics to evaluate variations in NWC across time and companies.
Main findings: The results show no statistically significant difference in NWC before, during and after the financial crisis. However, descriptive analyses revealed a temporary liquidity build-up in 2021, indicating precautionary behaviour consistent with liquidity preference motives. The findings demonstrate context-driven, specific and resource-driven adjustments rather than structural policy changes.
Practical/managerial implications: The study highlights the importance of integrating contingency planning and internal liquidity capabilities in SME financial management. Companies with stronger internal resources and access to capital exhibited greater working capital stability during the crisis.
Contribution/value-add: This study contributes to the emerging literature of SME financial resilience by empirically linking liquidity preference, contingency adaptation and resource heterogeneity. It offers insights for policymakers and SME managers seeking to strengthen liquidity management and crisis preparedness in volatile environments.