The Moderating Effect of Inflation on the Relationship between Working Capital Management and Financial Performance: Evidence from the Saudi Stock Market

Document Type : Original Article

Authors

1 Jeddah International College.

2 Master of Business Administration - Jeddah International College

Abstract

This study investigates the moderating effect of inflation on the relationship between working capital management and the financial performance of non-financial companies listed on the Saudi Stock Exchange. An empirical approach was employed by analyzing financial data from the annual reports of 36 companies over the period 2020–2023. Multiple regression models were applied to examine the impact of working capital components—namely, the cash conversion cycle, payment period, storage period, and collection period—on financial performance, with inflation incorporated as a moderating variable. The findings reveal that the payment period exerts a significant positive effect on financial performance, while the cash conversion cycle, storage period, and collection period show negative effects. Moreover, the results demonstrate that inflation moderates these relationships by amplifying the negative effects of the cash conversion cycle, storage period, and collection period, while strengthening the positive role of the payment period. These outcomes underscore the necessity for firms to adopt flexible and efficient working capital management strategies that account for inflationary fluctuations in order to sustain financial performance.
The study recommends the development of adaptive financial policies that respond to inflationary pressures, supported by continuous monitoring of inflation’s impact on the different components of working capital.

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