Small and medium enterprises (SMEs) have been identified as key in growing the economy and being a major source of job creation in many countries, accounting for approximately 90% of businesses and more than 50% of employment worldwide (World Bank 2023). This is also evident in South Africa, where SMEs account for approximately 91%–92% of formal businesses and employ about 56%–61% of employees in the formal sector (Van Wyk 2023). The National Development Plan also highlights SMEs as an important part of creating jobs and growing the economy (South African Government 2014). As great as SMEs are, they often face challenges and fail as a result, with a failure rate estimated to be between 40% and 90% (Bushe 2019). One of the contributors to the challenges faced by SMEs is a financial crisis, which often leaves SMEs more vulnerable because of reasons such as dependence on credit, lower capitalisation, and having fewer financing options (Lacina & Vavřina 2013). A financial crisis can be described as a rare economic disaster or an event that occurs infrequently but has extremely harmful consequences when it does, and, according to the National Bureau of Economic Research (2020), such rare disasters eventually do occur. According to Hodorogel (2009), a financial crisis harms SMEs and slows down their rate of development.

During such crises, working capital management (WCM) becomes critical for business continuity and survival (Aktas, Croci & Petmezas 2015; Baños-Caballero, García-Teruel & Martínez-Solano 2014; Garcia–Turuel & Martinez-Solano 2007). These events often cause a recession and, according to Campello, Graham and Harvey (2010), companies’ liquidity management policies will be affected during a financial crisis. In times of crisis, companies may shift from an aggressive net working capital (NWC) policy to a more conservative NWC policy to manage or reduce risk and ensure the company remains liquid (Chiou, Cheng & Wu 2006; Pais & Gama 2015; Tarighi et al. 2024).

One such disaster that has caused a financial crisis is the coronavirus disease 2019 (COVID-19) pandemic. On 11 March 2020, the World Health Organization (WHO 2020) declared COVID-19 a pandemic. The South African government placed the country under alert level 5 on 27 March 2020, which represented one of the strictest lockdowns in the world, even though at the time, there were no deaths reported and only 1170 cases were confirmed globally (Olivier, Botha & Craig 2020). This effectively halted most economic activity (Carlitz & Makhura 2021; Cele & Tshikovhi 2023), which severely disrupted most business activities except for those deemed essential services.

For many companies, the lockdown meant that they could not sell their inventory, which, in turn, meant that holding costs associated with inventory would increase (Zimon et al. 2021). It also made it hard for businesses to collect their debt from their customers, thereby increasing receivables as customers began to focus on their cash flow. Companies that also struggled with selling their inventory and collecting their debt would, in turn, also struggle to make payments to their creditors. Net working capital, defined as the sum of current assets less current liabilities (Correia 2024; Oladimeji & Aladejebi 2020), became a crucial indicator of liquidity. Management of an entity has to make a decision on the optimal level of current assets and current liabilities, or NWC, as this has been shown in the literature to have an impact on liquidity, cash flow and profitability (Louw et al. 2017). The decision on the best amount of current assets to hold and how they should be financed is known as the working capital policy (Vishnani & Shah 2007). Companies can adopt conservative, aggressive or moderate NWC policies, depending on their risk appetite and operating environment (Tauringana & Adjapong Afrifa 2013; Weinraub & Visscher 1998).

The COVID-19 pandemic caused significant strain on SMEs, limiting their cash flows, liquidity and access to capital. This access is especially important in times of crisis. The Johannesburg Stock Exchange (JSE) established AltX precisely to enable SMEs to access capital and grow into larger companies (JSE 2025). A recent study found that listing positively influences the performance of SMEs (Egu & Chiloane-Tsoka 2023). However, research shows that SMEs are not resilient to shocks such as COVID-19, with secondary and tertiary sector companies more vulnerable, while those in agriculture, forestry and utilities are comparatively more resilient (Anakpo & Mishi 2021). Evaluating the NWC responses during the COVID-19 pandemic, therefore, provides insights with both academic and policy relevance.

Internationally, studies show mixed results. Zimon and Tarighi (2021) investigated the effects of COVID-19 on the WCM policies among Polish SMEs, and the results of their study showed that firms employed a moderate-conservative WCM policy, and the pandemic did not significantly change the WCM policy. Grofčíková, Musa and Streimikis (2023) investigated how the COVID-19 pandemic affected the NWC in industrial production companies by using the Wilcoxon signed-rank test in order to examine whether there was a significant interannual change between the period from 2017 to 2021 in the NWC. The findings of that study indicated that there was an increase in NWC during the time of COVID-19. These contradictions highlight the need for further research.

In South Africa, however, there has been limited empirical work examining how SMEs, particularly companies listed on the AltX, adjusted their NWC policies during COVID-19. This study, therefore, aims to fill this gap by analysing whether the pandemic had a significant impact on the NWC policies of SMEs listed on the AltX, by focusing on the interannual changes in NWC before, during, and after the crisis. By doing so, the study contributes both theoretically and practically by testing crisis-related applications of contingency and resource-based theories as well as offering insights into SME resilience and liquidity management for policymakers and practitioners.

The theory that provides a foundational framework for understanding WCM is the contingency theory. The contingency theory emerged in the 1960s mainly through the work of Burns and Stalker (1961) and was expanded by Lawrence and Lorch (1967), who emphasise that a universal optimal way to manage an organisation does not exist. Instead, the contingency theory states that there are multiple ways in which a company can manage its operations and that a company must adapt their strategies to internal conditions and external environments (Otley 2016). When applied to WCM, the theory states that companies will differ in how they adjust their NWC policies by choosing moderate or aggressive policies to respond to external financial crises. During a financial crisis, for example, some companies may prioritise liquidity over profitability and shift towards a more conservative working capital policy.

The theory that complements this contingency theory is the resource-based view (RBV) theory, which highlights the role of internal resources in shaping competitive advantage and resilience (Barney 1991). For SMEs, financial resources such as cash, accounts receivable and access to credit markets become critical strategic assets. Companies that are listed on the AltX are particularly relevant, since the listing provides SMEs with improved access to capital markets (Egu & Chiloane-Tsoka 2023; JSE 2025). The RBV theory, therefore, assists in understanding how SMEs listed on the AltX leverage or adapt their financial resources to survive a systemic financial crisis caused by COVID-19.

Other theoretical contributions include the liquidity preference theory of Keynes (1937), which states that companies will prioritise holding liquid assets in times of uncertainty. The liquidity preference theory aligns with evidence that, during COVID-19, companies increased their current asset holdings and liquidity buffers at the expense of efficiency (Tarighi et al. 2024). The three theories discussed provide a multilayered lens to interpret NWC policy responses to a financial crisis.

Net working capital is generally defined as the difference between current assets and current liabilities, capturing both liquidity and short-term solvency (Correia 2024; Oladimeji & Aladejebi 2020). Working capital strategies (policies) can be classified into conservative, moderate and aggressive (Tauringana & Adjapong Afrifa 2013; Weinraub & Visscher 1998). A conservative working capital policy means that an entity prioritises liquidity by maintaining higher levels of current assets and by holding large inventories, having relaxed credit terms for its customers, and paying its liabilities a bit later than usual, while an aggressive policy minimises current assets and seeks efficiency gains, often at the cost of higher risk (Talonpoika et al. 2016). The balance between these policies reflects managerial trade-offs between profitability and risk, which necessitates that a company finds an optimal balance, as empirical evidence shows that shifts in policy occur during periods of macro-economic instability (Chang, Chou & Dandapani 2025).

Prior research highlights that financial crises have a direct influence on WCM policies. Ahmad, Bashir and Waqas (2022) compared the global financial crisis of 2008 with the COVID-19 pandemic and found that WCM had a more pronounced impact on company performance during the COVID-19 pandemic. Specifically, the authors found differences in the influence of NWC and related metrics on profitability, with some indicators, such as current ratios, negatively affecting returns on assets; on the other hand, it positively influences market valuations. Their findings suggest that periods of crises alter the balance between liquidity and profitability, reinforcing the contingency theory perspective.

Similarly, Tarighi et al. (2024) examined Iranian firms and found evidence of shifts towards conservative policies during the COVID-19 pandemic as companies increased current assets, liquidity ratios and NWC while reducing operational cycles and receivables. Their findings supported the liquidity preference theory, as managers prioritised financial stability and resilience over efficiency.

Zimon and Tarighi (2021), by contrast, reported that Polish SMEs maintained a moderate to conservative policy stance, with the COVID-19 pandemic not significantly changing their WCM policies. Meanwhile, Grofčíková et al. (2023) observed significant increases in NWC among companies in the industrial production sector in Slovakia, pointing to sectoral variations. These conflicting findings highlight the importance of context, economic structure, industry and company size in shaping responses in times of financial crisis.

Studies in South Africa on WCM during financial crises remain limited. Struwig and Watson (2022) found that companies in South Africa faced both liquidity problems and system disruptions, which create a need to stabilise cash positions, respond to demand volatility and pursue digital transformation. Enow and Brijlal (2014), using AltX-listed companies, confirmed that debtor and inventory management have a significant impact on profitability, with creditors’ terms negatively influencing cash conversion cycles. At a broader level, Anakpo and Mishi (2021) reported that SMEs in the secondary and tertiary sectors were particularly vulnerable to the COVID-19 pandemic, while companies in the primary sectors, such as agriculture, were more resilient. These findings demonstrate the uneven impact of financial crises across industries and highlight the value of examining sectoral effects within SMEs listed on the AltX.

Building on the identified gap in prior research regarding how SMEs, particularly those listed on the AltX, adjust their NWC policies during a financial crisis, the objective of this study was to evaluate the NWC responses of SMEs listed on the AltX during a financial crisis. The study employed quantitative statistical research methods to objectively investigate how SMEs listed on the AltX adjusted their NWC policies in response to the financial crisis caused by the COVID-19 pandemic. The study used secondary numerical data from financial statements of companies listed on the AltX, obtained from IRESS. Numerical data for the financial period from 2017 to 2022 was analysed. This range was chosen as it covers periods before, during and after the COVID-19 pandemic, and will be used to evaluate whether there was a significant shift in working policy as a result of the recent financial crisis.

The following two-tailed hypotheses were formulated at the 5% level of significance:

The study analysed data for the period 2017 to 2022, providing a longitudinal of the NWC behaviour of SMEs across different phases of the COVID-19 pandemic. Previous studies on the 2008 global financial crisis similarly adopted multi-year windows: Akgün and Memiş Karataş (2020) investigated WCM and business performance, looking at the period from 2003 to 2012, while Haron and Nomran (2016) investigated the determinants of WCM before, during and after the global financial crisis of 2008 by looking at the period from 2002 to 2012. The precedent from these studies supports the structure of this study, which l evaluates the changes in the NWC before, during and after the COVID-19 pandemic.

For the sample period, 22 companies were listed on the AltX. This study included all SMEs listed on the AltX for which complete financial statements were available for the years 2017 to 2022, rather than applying a sampling method. Two companies were excluded from the study: one because of not having current assets for the period under investigation, and the other for only having financial statements for the period after the lockdown, namely 2022 and 2023. The final dataset of 20 companies was analysed. Financial services, investment holding and property-related entities were retained in the sample because the study employed a census approach of SMEs listed on the AltX with complete financial data for the period under review, rather than applying an industry-specific sampling strategy. Although working capital studies often exclude financial services firms because of differences in operating and regulatory structures, the objective of this study was to evaluate the NWC responses of the AltX SME population as a whole. To account for company-level heterogeneity arising from differences in business models, the company was included as a random effect in the linear mixed model. Some companies have their financial statements reported in foreign currency; their figures were translated at the current spot rate to represent the years on the basis of current prices.

For the LMM, the model was fitted with company as a random effect. Company represents the sector variable and aids in assessing whether there is influence. The model was used to support the use of the Wilcoxon signed-rank test to answer the objective of the study, which is to evaluate the responses in the NWC of the companies listed on the AltX. The results of the LMM model are presented in Table 1. The results show that the random effect, company, has a moderate influence on the variation explained. As shown in Table 1, year did not have a statistically significant fixed effect on NWC (F [5,105] = 1.25, p = 0.2912). The random effect of company accounted for approximately 42% of total variance, indicating a moderate between-company influence. This moderate company-level influence validates that using companies from different sectors does not significantly change the result of the study, even if companies in the same sector were used.

The coefficient estimates of each year, using 2017 as the reference category, are presented in Table 2. None of the changes from year to year was statistically significant at the 5% level. The LMM model additionally assessed whether there was a significant difference in NWC across consecutive years. Based on the results of the model at a 5% significance level, there are no statistically significant differences in NWC across the years; however, 2021 and 2022 show upward trends, although not statistically significant. The largest positive estimate was for 2021 (β = 0.3471, p = 0.1358), followed by 2022 (β = 0.2898, p = 0.2129), although these effects were not statistically significant at the 5% level.

The objective of the study was to evaluate whether SMEs listed on the AltX adjusted their NWC policies because of the financial crisis caused by the COVID-19 pandemic. Both the LMM and the Wilcoxon signed-rank test results confirmed that year-by-year changes in NWC before, during and after the crisis were not statistically significant, supporting the null hypothesis (Ho). Nonetheless, the descriptive results and the graphical analyses provide valuable insights into underlying dynamics.

The correlation analysis (Figure 1) reveals a largely consistent pattern in NWC behaviour, with correlations rising from 60% in 2018 to 88% in 2020, followed by a temporary decline to 60% in 2021 and a strong recovery to 91% in 2022. This pattern indicates that while SMEs experienced short-term disruptions during the peak of the COVID-19 pandemic, they tended to maintain their pre-crisis policies rather than engage in wholesale shifts. These findings align with the findings of Zimon and Tarighi (2021), who found that Polish SMEs did not significantly change their WCM policies during COVID-19, adopting a moderate to conservative policy throughout.

Our findings also resonate with Grofčíková et al. (2023), who investigated the changes in the volume of NWC of companies in the industrial production sector operating in Slovakia. They observed decreases in NWC from 2019 to 2020, followed by increases in 2021 as companies rebuilt their liquidity positions. While some of these changes were statistically significant, some of them were small, suggesting modest shifts in practices rather than systematic transformations. In our study, the same directional pattern was observed – decreases from 2019 to 2020, followed by a sharp increase in 2021 (+166%), though not statistically significant, but nonetheless material. This contrast demonstrates the importance of context; our SMEs listed on the AltX, with a smaller sample size and different industries, showed similar behavioural trends, but without measurable significance found in more homogeneous industrial sectors.

At the same time, our results diverge from Tarighi et al. (2024), who reported that Iranian firms adopted conservative working capital policies, significantly increasing liquidity ratios during the COVID-19 crisis. In the same way, Ahmad et al. (2022) showed that the relationship between working capital and company performance shifted more strongly during COVID-19 compared to the 2008 financial crisis. A possible explanation for these differences can be contextual factors: Companies listed on the AltX have access to capital markets, which may have cushioned liquidity pressures relative to SMEs in emerging markets without such access.

The sharp but temporary increase in NWC observed in 2021 (+166%) is notable. While it may not be statistically significant, it suggests precautionary liquidity accumulation, which is consistent with the liquidity preference theory and with the findings of Struwig and Watson (2022), who emphasised the importance of having cash buffers and system resilience during the pandemic. However, by 2022, this sharp increase was followed by a modest decline (−8%), suggesting that companies drew down reserves once restrictions eased.

These findings highlight the contingency theory perspective: A company’s NWC policy responses were not only shaped by the crisis itself, but also by company-specific resource endowment and strategic choices. The lack of statistical significance across tests highlights the methodological contribution of using both non-parametric testing and descriptive analyses to uncover the directional but heterogeneous shifts in behaviour.