Firm-level evidence on working capital investment and financing policies in Czechia’s agricultural sector

Abstract

Purpose. Effective working capital management influences the current financial position and the further development of any business entity. This paper aims to identify the firm-level determinants of working capital management in Czech agricultural companies, whose operating activities are characterised by specific sectoral features. Methodology. Working capital management is measured using three indicators: the cash conversion cycle, investment policy (current assets to operating revenue), and financing policy (current liabilities to total assets). Potential determinants include firm size, growth opportunities, asset and capital structure, inventory, receivables and payables turnover, liquidity, and profitability. The relationship between these indicators and firm characteristics is examined using linear regression and weighted least squares regression. The balanced dataset, drawn from the Orbis Europe database for 2015–2024, contains 6,410 observations from medium-sized, large, and very large agricultural firms in Czechia. Results. In Czech agricultural companies, the average cash conversion cycle is 109 days, while the inventory turnover period, collection period, and credit period average 114, 35, and 39 days, respectively. Firms follow a moderate investment policy, with current assets averaging 64% of operating revenue, and a conservative financing policy, with equity covering 64% of total assets. Liquidity is generally high. The regression results show that longer inventory and receivables turnover lead to a more conservative working capital investment policy, while higher asset intensity, profitability and aggressive financing support more aggressive investment policy. A conservative financing policy is associated with stronger liquidity, higher tangibility, superior profitability, and a conservative investment policy. The cash conversion cycle is lengthened by firm size, conservative investment policy, and longer collection period, but shortened by higher profitability and greater reliance on short-term financing. Originality. Using a representative balanced dataset, alternative model specifications, and a wide range of firm-specific variables, this paper provides the first comprehensive analysis of the determinants affecting working capital management in Czech agriculture, a sector characterised by specific structural features and differences from the EU average. Practical implications. The identified firm-level determinants and the structural specifics of their impact can guide financial managers in applying this approach within their own companies. By selecting appropriate investment and financing policies, agricultural enterprises can optimise their operating performance and ensure further business development.