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XJM
21,2 Assessing the influence of financial
management practices on
organizational performance of small-
162 and medium-scale enterprises
Received 23 September 2023 Frank Nana Kweku Otoo
Revised 23 December 2023
Accepted 31 January 2024
Department of Secretaryship and Management Studies,
Faculty of Business and Management Studies, Koforidua Technical University,
Koforidua, Ghana

Abstract
Purpose – Optimal application and commitment toward financial management practices enhance organization
performance. This study aims to assess the influence of financial management practices on the organizational
performance of small- and medium-scale enterprises.
Design/methodology/approach – Data were collected from 45 small-sized and 72 medium-sized firms. Data
supported the hypothesized relationships. Construct reliability and validity were established through confirmatory
factor analysis. The conceptual model and hypotheses were evaluated by using structural equation modeling.
Findings – The results indicate that working capital significantly influenced organizational performance.
Capital budget management significantly influenced organizational performance. A non-significant influence
of asset management on organizational performance was observed.
Research limitations/implications – The generalizability of the findings will be constrained due to the
research’s SMEs focus and cross-sectional data.
Practical implications – The study’s findings will serve as valuable pointers for stakeholders and
decision-makers of SMEs in developing well-articulated and proactive financial management systems to
ensure competitiveness, sustainability, viability, and financial competencies.
Originality/value – The study adds to the corpus of literature by evidencing empirically that financial
management practices significantly influenced SMEs’ performance.
Keywords Asset management, Working capital management, Capital budget management,
Financial management practices, Organizational performance
Paper type Research paper

Introduction
Small and medium enterprises play a significant role in fostering innovation, generating
employment opportunities, and lowering income inequality (Awad-Warrad, 2018; Kiyabo
and Isaga, 2019; Zaridis et al., 2021). SMEs constitute about 99% of businesses globally
(Dzomonda and Fatoki, 2019; Mahmudova and Kov
acs, 2018; Zada et al., 2021). SMEs
contribute to improved economies in many developing nations (Gumede, 2019; Lugongo,

© Frank Nana Kweku Otoo. Published in Vilakshan – XIMB Journal of Management. Published by
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2022; Moise et al., 2020). SMEs boost economic activity, which fosters national growth and Financial
development (Bel
as et al., 2018; Horv
ath and Szab
o, 2019; Godke Veiga and McCahery, management
2019).
In Ghana for instance, SMEs constitute about 92% of businesses (Abudu et al., 2021;
practices
Otoo, 2022; Quaye and Mensah, 2018), provide over 80% of employment (Abor and Quartey,
2010; Biney, 2018; Fraser et al., 2015) and contribute over 70% of the nation’s gross domestic
product (Nketiah, 2018; Otoo, 2019; Quaye, 2014). Organizations are constantly under
pressure to design, implement and swiftly modify their financial management strategies to 163
reduce risk, and improve financial performance and capacities (Erambo et al., 2016; Kimutai
and Muigai, 2018; William, 2018). An improved commitment and execution of financial
management practices lead to improved business performance (Coleman and Cohn, 2017;
Ekanem, 2017; Raheman, 2010). Indigent financial management leads to poor financial
judgment (Dwangu and Mahlangu, 2021; Kiyabo and Isaga, 2019; William, 2018).
Financial management practices improve organizational performance by influencing
performance efficiency and success (Erambo, 2017; Dittenhofer, 2018). However, despite the
evidence showing a favorable association between financial management practices and
organizational outcomes, the mechanisms by which financial management practices
influence performance are significantly underrepresented (Akpan et al., 2022; Boisjoly et al.,
2020; Musah et al., 2018). Most research on financial management practices in SMEs focuses
on developed economies such as the UK (Mcmahon, 2001), USA (McMahon and Holmes,
1991), Italy (Sensini, 2020), Canada (Bahri et al., 2017), Germany (Henschel, 2006), Span
(Chalmers et al., 2020) and The Netherland (Maes et al., 2005).
However, with some exceptions (Abor, 2007; Adegbie and Alawode, 2020; Ahmed and
Mwangi, 2022; Osei et al., 2023), scant studies on financial management practices in the
West Africa SMEs. Financial management practices are essential elements of effective SME
performance (Mwangi and Biruda, 2015; Nketiah, 2018; Zaridis et al., 2021). Literature
underscores the important role of financial management practices in organizational
competitiveness and performance (Adegboye and Iweriebor, 2018 Brijlal et al., 2017;
Nthenge and Ringera, 2017). Financial management practice is a source of competitive
advantage and a valuable resource (Bismark et al., 2018; Mwashi and Miroga, 2018; Tang et
al., 2019).
Drawing on these augments, the study endeavors to fill this gap by proposing a model to
explore the nexus between financial management practices and organizational performance.
The study contributes to the strategic financial management literature in twofold. First, the
study theoretically supports the relationship between financial management practices and
organizational performance. Second, the study provides empirical evidence of the financial
management practices–organizational performance relationship using both financial and
non-financial performance measures. Previous studies have analyzed this relationship by
using perceptual non-financial or financial measures (Matsoso and Benedict, 2014; Muneer
et al., 2017; Turyahebwa et al., 2013).
The findings contribute to the literature by providing theoretical arguments that justify
that financial management practices positively influence both financial and non-financial
performances. To set the groundwork for the study, the theoretical underpinnings of
financial management practices and organizational performance are described. The
conceptual model that links financial management practices to organizational performance
is then used to frame the hypotheses. Structural equation modeling is used to assess the
efficacy of the proposed conceptual model and hypotheses, and the results are then
contrasted with those of prior studies that came to similar conclusions. The study’s
limitations, implication, and suggestions for future investigation are provided.
XJM Literature review
21,2 Theory and hypothesis development
The resource-based view (RBV) theory (Khan et al., 2020; Onjewu et al., 2022; Zhang et al.,
2021) and system management theory (Khan et al., 2022; Samuel and Jacobsen 1997; Yoon
and Kuchinke, 2005) serve as the theoretical underpinnings in determining the association
between financial management practices and organizational performance. RBV postulates
164 that the efficient utilization of an organization’s capabilities and resources determines its
performance (Sadraei et al., 2022; Shan et al., 2019; Shiri and Jafari-Sadeghi, 2022). According
to RBV theory firm’s gain a competitive advantage by using resources that are valuable and
non-replaceable (Bhandari et al., 2020; Biancone et al., 2022; Satyanarayana et al., 2022).
The system management theory asserts that the relationships between distinct
subsystems, interdependence, and integration propel organizational growth and
development (Saad et al., 202; Schneider and Somers 2006; Teece, 2017). According to the
systems management theory, actions and decisions taken by a division of an organization
will have an effect on other divisions (Caesar et al., 2017; O’Connor, 2008; Poole, 2014).

Financial management practices

Financial management is at the heart of managing financial resources (Coleman and Cole,
2017; Deakins et al., 2018; Pinegar and Wilbricht, 2009). The future of best practice
organizations lies in financial management (Mathiba, 2018; Vohra and Dhillon, 2014;
Waweru and Hgugi, 2014). Financial management practices are a collection of standard
procedures developed for handling financial reporting, budgeting, and other operations
involving firm funds (Ahmed and Mwangi, 2022; Brock, 2007; Ross et al., 2016). Financial
management practices are an integral part of financial resource management and financial
decision-making (Dwangu and Mahlangu, 2021; Sooriyakuman et al., 2022).
Working capital management, capital budget management, and asset management are
outlined as components of financial management practices by several authors (Alles et al.,
2021; Chohan: 2019; Tang et al., 2019). Working capital management is essential for an
organization’s fiscal viability and a determinant of its profitability and success (Le, 2019;
Louw et al., 2022). Capital budgeting is a major terrain of the sphere of financial
management is extremely important for capital investment decisions (Farooq and Subhani
2021; Page and Okeke, 2019). Asset management integrates quality asset information from a
wide range of sources to inform decisions (Abdirad and Dossick, 2020; Fang et al., 2022).
Financial management practices ensure the financially stability and profitability position
of organizations (Farooq 2019; Orobia et al., 2017; Stephen et al., 2017). Effective financial
management practices ensure the adequacy of cash flow generation (Deakins et al., 2018;
Salazar et al., 2013; Wild et al., 2015).

Organizational performance
Organizational performance is an intricate and multifaceted concept (Ateke and Akani,
2018; Singh et al., 2016; Wood and Ogbonnaya, 2018). Organizational performance is the
degree to which an organization succeeds in achieving its goals (Nitzl et al., 2018; Zhang
et al., 2008). Several authors concurred with the above view when they posited that an
organization’s performance is a function of its ability to develop strategies that align it with
the changing environment’s complexity and dynamic nature (Abubakar et al., 2019, Rehman
et al., 2019; Shea et al., 2012). Similarly, many scholars postulate that organizational
performance is a key measure of achieving set organizational goals and objectives
(Laaksonen and Peltoniemi, 2018, Schwens and Wagner, 2019; Singh et al., 2016).
 Organizational performance can be measured subjectively by using non-financial Financial
indicators or objectively by using financial performance indicators to establish the management
attainment of organizational goals and objectives (Marzall et al., 2022; Richard et al., 2009; practices
Singh et al., 2019). However, literature advocates the use of both financial and non-financial
measures (Dryer and Reeves, 1995; Harris and Mongiello, 2001; Meinhardt et al., 2018).
Capital market, financial, organizational and human resource attributes of organizational
performance were examined in this study. 165
Financial management practices and organizational performance
Theoretical and conceptual approaches have been examined to establish a synergy between
financial management practices and organizational performance (Abakah, 2019; Wolmorans,
2015; Zada et al., 2021). Financial management practices add value and are a key source of
competitive advantage (Deloof, 2003; Jindrichovska, 2013; Sooriyakumaran et al., 2022).
Eminent scholars assert that efficient financial management practices enhance organizational
performance and economic growth (Atrill, 2016; Dwangu and Mahlangu, 2022; Jarvis et al.,
2013). In a similar vein, many authors contend that financial management practices guarantee
effective resource utilization and business profitability (Brigham and Ehrhardt, 2016; Muthama
and Warui, 2021; Singh et al., 2019). Subsequent reviews shed light on the relationship between
selected financial management practices and organizational performance.

Working capital management and organizational performance

Several studies have advocated the relationship between working capital management and
firm’s performance (Aldubhani et al., 2022; Gloy and LaDue, 2011; Mazlan and Choong,
2018). Working capital management is the strategic decision of managing payables,
inventories and receivables (Farooq and Subhani, 2021; Tarkom, 2022). Working capital
management determines a firm’s financial performance, liquidity, risk and value (Enqvist
et al., 2014; Lee et al., 2022; Sniazhko, 2019; Mazlan and Choong, 2018) concurred with the
above view when they accentuate that firms with optimal levels of working capital
maximizes their value.
Similarly, numerous academics postulate that an ineffective working capital management
practice has a direct impact on a firm’s liquidity, profitability and transparency (Farooq,
2019; Lefebvre, 2022; Louw et al., 2022). The following hypothesis is advanced:

H1. Working capital management has a significant influence on organizational performance.

Capital budget management and organizational performance

Many scholars have examined the connection between capital budget management and
organizational performance (Balarabe, 2020; Pearce, 2019; Pratheepkanth et al., 2018).
Al-Mutairi et al. (2018) opined that capital budgeting is a planning mechanism in making
evaluation decisions in the allocation of resources among investment projects. Several scholars
emphasize the importance of capital budgeting in managerial decisions and in determining a
firm’s long-term financial performance (Alles et al., 2020; Garrison et al., 2018; Orobia et al.,
2020). Along the same line, many authors argue that capital budgeting is essential for the firm’s
strategic decisions in respect of cost maximization, firm expansion, asset decisions (Alleyne
et al., 2018; Awinja and Fatoki, 2021; Toloo et al., 2018). The following hypothesis is advanced:

H2. Capital budget management has a significant influence on organizational performance.

XJM Asset management and organizational performance
21,2 The relationship between asset management and organizational performance has drawn
considerable attention, as investment in asset management has expanded (Dennis et al., 2017;
Maletic et al., 2018; Nel and Jooste, 2016). Asset management is the entity responsible for all
asset-related strategies, decisions and actions that are risk-based and related to the objectives
of the firm (Kumar and Lin, 2020; Mehairjan, 2017; Srinivasan and Parlikad, 2017). Asset
166 management is premised on the underlying principle of leadership value, assurance and
alignment (Pragale et al., 2018; Tang et al., 2019; Woodhouse, 2019). Asset management
provide a source of quality asset information to inform strategic, tactical and operational
decisions (Abdirad and Dossick, 2020; Kelly and Hardy, 2018; Gavrikova et al., 2020).
Academics postulate that asset management enhance the conditions of the organizations’
assets and promote organizational effectiveness, competitiveness, sustainability and
compliance (Broo and Schooling, 2020; Cecconi et al., 2017; Parida, 2016). The following
hypothesis is advanced:

H3. Asset management has a significant influence on organizational performance.

Methods
Research setting and data structure
SMEs fosters innovation and economic transformation (Lugongo, 2022; Nkwabi, 2019). SME
performance hinges on well-articulated financial management practices, making it distinct
in addressing financial management-related issues (Hunjra et al., 2019; Nguyen, 2019). The
study used a positivist methodological paradigm (Nyein et al., 2020; Park et al., 2020). The
National Board for Small Scale Industries Directory (2023) was sourced in obtaining
information on the SMEs. Data were obtained from 45 small-sized and 72 medium-sized
firms. A structured questionnaire was used in a cross-sectional study design (Lincoln et al.,
2018; Schmidt and Brown, 2019).
The study sample consisted of 1,136 respondents. SMEs were selected using a purposive
sampling technique (Campbell et al., 2020; Esfehani and Albrecht, 2019). Employees served
as the study’s primary informants (Coghlan et al., 2019; Hansen and Madsen, 2019). A total
of 826 respondents (72.5% response rate) provided complete responses. Inference from
Table 1, men constituted 57.5% (majority) of respondents. The age range of 26–35 years was
represented by (37.2%) of the respondents. A total of 38.5% of SMEs were small-sized
enterprises, whereas 61.5% were medium-sized enterprises.

Measures
The measures were scored using a Likert scale, with 1 denoting (“strongly disagree”) and 5
denoting (“strongly agree”). The construct standards estimate criterion proposed by Hair et al.
(2022); Henseler (2021) was applied. A construct’s statements that fell short of the ideal threshold
of 0.60 or higher were removed (Mehmetoglu and Venturini, 2021; Rhemtulla et al., 2020).

Financial management practices scale

Working capital management (Mazlan and Choong, 2018), capital budget management
(Balarabe, 2020) and asset management (Kelly and Hardy, 2018) were adopted in measuring
financial management practices. Sample items include “A robust working capital system”.
The reliability each of the three dimensions of financial management dimensions was 0.89,
0.86 and 0.82, respectively. The reliability score for all 14 items was 0.82. The inter-
dimensional correlations which ranged between 0.56 and 0.77 were high.
Variables Frequency (s) (%) of totals
Financial
management
Gender practices
Male 515 62.3
Female 311 37.6
Age
18–25 128 15.4
26–35 237 28.7
167
36–45 307 37.2
46–55 86 10.4
56–65 68 8.3
Education
Senior high 127 15.4
Diploma 146 17.7
HND 317 38.4
Bachelor’s degree 197 23.8
Master’s degree 39 4.7
Size of Firm
Small (9–15 employees) 45 38.5
Medium (20–99 employees) 72 61.5 Table 1.
Profile of
Source: Table by author respondents

Organizational performance scale

Financial outcomes (Rowe and Morrow, 1999), organizational outcomes (Chenhall and
Langfield-Smith, 2007), human resource outcomes (Dryer and Reeves, 1995) and capital market
outcomes (Richard et al., 2009) were adopted in measuring organizational performance. Sample
items include “In comparison to other firms over the last three years, the firm has seen a return
on its investment”. The reliability for each of the four dimensions of organizational
performance was 0.87, 0.85, 0.88 and 0.81, respectively. The reliability score for all 15 items was
0.83. The inter-dimensional correlations which ranged between 0.54 and 0.76 were high.

Analytic approach
A confirmatory factor analysis was conducted to ensure proper representation of the
proposed constructs (Henseler and Schuberth, 2020; Schuberth et al., 2018). A two-level
hierarchical linear model was developed (Hair and Sarstedt, 2021; Hwang et al., 2020). The
proposed conceptual model and hypothesis were assessed by using the Statistical Packages
for Social Science (SPSS) 21.0 and Analysis of Moment Structure (AMOS) 26.0 (Ringle et al.,
2020, Sarstedt et al., 2020). The association between sub-dimensions and the nexus between
observable indicators and their latent construct were examined (Kuppelwieser et al., 2019;
Rasoolimanesh et al., 2021). Construct reliability, construct validity and convergent validity
were examined (Cheah et al., 2018; Hair et al., 2022). Discriminant validity between
constructs were examined (Franke Sarstedt, 2019; Radomir and Moisescu, 2019). Figure 1
depict a representation of the conceptual model.

Common method bias

Several a priori measures were applied in addressing the issue of common method bias
(Delpechitre et al., 2018; Williams and McGonagle, 2016). During the pretest study, mid-point
scales for each survey item were provided and ambiguous questions were clarified, and
XJM Financial Management Practices

21,2

Working Capital Management

Financial Outcomes

Capital Budget Management

168 Organizational Organizational Outcomes
Performance

Asset Management Capital Market Outcomes

Figure 1.
Human Resource Outcomes
Conceptual
framework
Source: Figure created by author

psychological separation of constructs were ensured (Baumgartner et al., 2021; Steenkamp

and Maydeu-Olivares, 2021). To lessen social desirability bias respondents’ anonymity and
confidentiality were assured (Minbashian et al., 2019; Kock et al., 2021). A post hoc
evaluation using the Harman’s one-factor test was applied (Cooper et al., 2020; Griffiths et al.,
2019). The findings demonstrate that the established benchmarks were sufficient (Lin and
Tsai 2019; Rodríguez-Ardura and Meseguer-Artola, 2020). Common method bias
consequences remained insignificant as warranted by these approaches.

Results
A two-factor CFA model representing financial management practice and organizational
performance achieved a good model fit (x2/df = 2.63, RMSEA = 0.048, SRMR = 0.042, TLI =
0.984, CFI = 0.986) (Ghasemy et al., 2020; Rigdon et al., 2019). Estimates of the coefficient
ranged from 0.81 to 0.89 (Cepeda Carri
on et al., 2019; Shmueli et al., 2019). The standard
estimates’ range was 0.74–0.88 (Danks et al., 2020; Jorgensen et al., 2020). The range of
estimates for (AVE) was 0.60–0.70, whereas (CR) was 0.74–0.88 (Liengaard et al., 2021;
McNeish et al., 2018). Discriminant validity was established (Shaffer et al., 2016; Voorhees
et al., 2016). Table 2 presents descriptive statistics and correlation analysis, whereas Table 3
presents the results of the model test. Table 4 display CFA results, whereas Table 5 presents
discriminant validity test results. Table 6 displays the results of the hypotheses test.
Working capital management significantly influenced organizational performance (0.767,

Items Mean SD 1 2 3 4 5 6 7

1. Working capital management 14.18 5.33 1

2. Capital budget management 11.66 4.51 0.278** 1
3. Asset management 6.88 2.46 0.607** 0.388** 1
4. Financial outcomes 5.96 2.35 0.612** 0.476** 0.778** 1
5. Organizational outcomes 6.35 2.27 0.518** 0.599** 0.678** 0.678** 1
6. Capital market outcomes 5.93 2.28 0.618* 0.689** 0.677** 0.668** 0.628** 1
Table 2. 7. Human resource outcomes 6.44 2.17 0.629** 0.519** 0.697** 0.537* 0.569** 0.669** 1
Descriptive statistics, Notes: **Correlation is significant at the 0.01 level (two-tailed); *Correlation is significant at the 0.05 level
correlations and scale (two-tailed)
reliabilities Source: Table by author
Model x2 Df x2/df P RMSEA SRMR TLI CFI
Financial
management
First-order CFA practices
Financial management practices 213.516 66 3.23 0.000 0.052 0.053 0.947 0.951
Organizational performance 217.603 68 3.20 0.000 0.054 0.051 0.936 0.943
Second-order CFA
Financial management practices 209.404 66 3.17 0.000 0.051 0.049 0.953 0.962
Organizational performance 214.572 68 3.15 0.000 0.049 0.047 0.961 0.969
169
Measurement model–Overall model 207.411 62 3.35 0.000 0.052 0.048 0.972 0.974
Structural model–Overall model 126.357 48 2.63 0.000 0.048 0.042 0.984 0.986 Table 3.
Notes: RMSEA ¼ root mean square of approximation; SRMR ¼ standardized root mean residual; TLI ¼ Results of the
Tucker–Lewis index; CFI ¼ comparative fit index; *p < 0.05 measurement and
Source: Table by author structural model test

p < 0.05), thereby supporting H1. Capital budget management significantly influenced
organizational performance (0.619, p < 0.05), thereby supporting H2. Asset management had
non-significant influence on organizational performance (0.536, p > 0.05). H3 is unsupported.

Discussion
This study provides crucial empirical insights in comprehending the nexus between financial
management practices and organizational performance (Coleman and Cohn, 2017; Deakins et al.,
2018; Ross et al., 2016). Financial management practices ensure firm survival and success
(Nkundabanyanga et al., 2017; Sa’eed et al., 2020). Thabet (2017) posited that the optimal
adherence to the financial management practices has the direct benefit to firms. The results
indicate that working capital management significantly influenced organizational performance.
Working capital management guarantees adequate cash flow to meet short-term debt obligations
and operating costs (Gloy and LaDue, 2011; Okphiabhele et al., 2022; Sniazhko, 2019).
Prior studies revealed a positive relationship between working capital management and
organizational performance (e.g., Altaf, 2020; Saini and Singhania, 2018; Sharma et al., 2020).
The findings show that working capital management has a significant impact on
profitability (Akgün and Memis  Karatas , 2020; Fern
andez-L
opez et al., 2020) and liquidity
(Gharaibeh and Bani, 2020; Pham et al., 2020). Thus, working capital management not only
facilitates the enhancement of a firm’s profitability but also favors the necessary conditions
for firm’s sustainability and growth. Capital budget management significantly influenced
organizational performance. Capital budgeting is essential for a firm’s long-term viability
and success (Baker et al., 2017; Li et al., 2020).
Earlier studies found a positive relationship between capital budget management and
organizational performance (e.g. Ramasobana et al., 2017; Siziba and Hall, 2021; Zainuddin
et al., 2021). The findings show that capital budget management has a positive impact on
return on equity (Naresh et al., 2022; Nguyen, 2019) and market growth (Khurana et al., 2019;
Qosasi et al., 2019). Hence, capital budget management not only facilitates firm survival and
sustainability but also supports the prerequisites for cost effectiveness and competitiveness.
Asset management had non-significant influence on organizational performance. A robust
asset management system provides a return on investment in the form of improved asset
performance (Proença and Borbinhaa, 2018; Srinivasan and Parlikad, 2017).
Previous studies revealed a positive relationship between asset management and
organizational performance (e.g. Dennis et al., 2017; Mehairjan, 2017; Pragale et al., 2018).
The findings show that asset management has a significant impact on return on asset
XJM Factor Items (l) AVE CR
21,2
Working capital A robust working capital system 0.824
management (a ¼ 0.89) Preparation of cash flow forecast in identifying future 0.812
surplus and deficits
Maintenance of proper records of all payables 0.776 0.63 0.88
Full automated receivable management system 0.796
170 Sufficient cash flow to meet daily needs 0.769
Capital budget Periodic budget estimation 0.776
management (a ¼ 0.86) Proper budget prior to any transaction 0.757
Creation of financial statement 0.786 0.60 0.86
Activity based budgeting 0.759
Financial analysis 0.781
Asset management Assets are kept in the best condition until disposal 0.768
(a ¼ 0.82) Laid down procedure for disposing assets 0.818
Provision for depreciation of assets 0.786 0.62 0.74
Maintenance of an up-to-date asset register 0.769
Financial outcomes In comparison to other firms over the last three years, 0.764
(a ¼ 0.87) the firm has seen a return on its investment
In comparison to other firms over the last three years, 0.824
there has been a return on the firm’s assets
In comparison to other firms over the last three years, 0.769 0.62 0.75
the firm’s profit has increased
In comparison to other firms over the last three years, 0.791
the firm’s revenue has increased
Organizational outcomes The productivity of the firm has increased 0.829
(a ¼ 0.85) New products or services are developed by the firm 0.881 0.70 0.86
Quality products or services are offered by the firm 0.839
The firm satisfy its customers or clients 0.785
Capital market outcomes In comparison to other firms over the last three years, 0.785
(a ¼ 0.88) the firm’s market value has increased
In comparison to other firms over the last three years, 0.773 0.61 0.83
the firm’s market share has increased
In comparison to other firms, the firm has had a growth 0.835
in sales over the last three years
In comparison to other firms, the firm’s stock price has 0.743
increased over the last three years
Table 4. Human resource The firm’s management and employees get along well 0.803
Confirmatory outcomes (a ¼ 0.81) The firm has the ability to retain employees 0.814
factor analysis The firm has the ability to attract employees 0.766 0.63 0.81
factor names, factor Notes: AVE = represents average variance extracted; CR = represents composite reliability. All factor
loadings and loadings are significant at *p < 0.05
Cronbach’s alpha Source: Table by author

(Godau and McGeoch, 2016; Trindade et al., 2019) and return on investment (Kelly and
Hardy, 2018; Maletic et al., 2018). Therefore, asset management interventions support the
prerequisite for compliance and effectiveness and the improvement of the value and
condition of a firm’s asset.

Theoretical Implications
This study supports the supposition for the improvement of financial management practices
and more research into the relationship between financial management practices and
organizational performance. The study’s findings shed light on the ambiguity in literature
on financial management practices and organizational performance (Muthama and Warui, Financial
2021; Sa’eed et al., 2020; Singh et al., 2019). Working capital management significantly management
influenced organizational performance. The results corroborate past studies that show that
working capital management impacts a firm’s profitability and desired level of liquidity
practices
(Ahmed and Mwangi, 2022; Garcia-Teruel and Solano, 2017; Tadesse, 2016).
They also concur with earlier studies that show working capital management reduces
risk and uncertainty while enhancing business performance (Chowdhury et al., 2018;
Jindrichovska, 2013; Le, 2019). The findings validate the supposition of researchers
171
(Aldubhani et al., 2022; Tarkom, 2022). Capital budget management significantly influenced
organizational performance. The results parallel past studies which indicate that capital
budgeting improves survivability, sustainability, profitability and cost-effectiveness (Imran
et al., 2019; Nguyen, 2019; Pratheepkanth et al., 2018). They also support earlier studies
which indicate that capital budgeting is a crucial component of the financial management
strategy which ensure that every investment decision enhances the firm’s competitive
advantage (Kinyua, 2018; Pearce, 2019; Siziba and Hall, 2021).
The findings support the postulation of researchers (Alles et al., 2021; Oyelaran-
Oyeyinka, 2020). Moreover, the results indicate that asset management had non-significant
influence on organizational performance. The results do not parallel the findings of several
authors who emphasized that asset management enables congruence between asset
management systems and corporate objectives (Cavka et al., 2017; Kumar and Lin, 2020; Lu
et al., 2019). They are also not consistent with the findings of earlier studies that show asset
management improves the value of a firms’ asset and promotes competitiveness,
sustainability and effectiveness (Khuntia et al., 2016; Mahmood et al., 2015; Rastegari and
Salonen, 2015). The findings do not validate the contention of researchers (Farghaly et al.,
2018; Woodhouse, 2019).

1 2 3 4 5 6 7

1. Working capital management (0.786)

2. Capital budget management 0.117 (0.814)
3. Asset management 0.597 0.283 (0.826)
4. Financial outcomes 0.219 0.439 0.654 (0.817)
5. Organizational outcomes 0.275 0.346 0.513 0.448 (0.797)
6. Capital market outcomes 0.096 0.429 0.317 0.316 0.454 (0.871)
7. Human resource outcomes 0.227 0.589 0.371 0.321 0.603 0.489 (0.786)

Note: Values in diagonal represent the squared root estimate of average variance extracted (AVE) Table 5.
Source: Table by author Discriminant validity

Hypothesis Beta coefficient p-value Result

H1. Working capital management has a significant influence on

organizational performance 0.767 0.003 Accepted
H2. Capital budget management has a significant influence on
organizational performance 0.619 0.019 Accepted
H3. Asset management has a significant influence on Table 6.
organizational performance 0.496 0.318 Rejected
Inferences drawn on
Source: Table by author hypotheses
XJM Practical implication
21,2 Financial management practices assess a firm’s level of financial health over a specific time
period (Brigham and Ehrhardt, 2016; Wild et al., 2015). Efficient financial management
practices result in higher organizational performance (Davies, 2018; Sherre and Kent, 2017;
Simon and Mohamed, 2017). The results show working capital management significantly
influenced organizational performance. Working capital management enhance organizational
172 competitiveness and liquidity (Chowdhury et al., 2018; Mazlan and Choong, 2018). Small- and
medium-scale enterprises would therefore have a keen interest in (re)evaluating working capital
strategies where robust working capital systems are implemented and there is availability of
sufficient cashflows (Aldubhani et al., 2022; Knauer et al., 2013).
Working capital management determines the amount of cash flow intended to influence
firm performance (Iqbal et al., 2022; Musa and Ibrahim, 2022). SMEs would have to (re)
evaluating working capital strategies where a fully automated receivable management
systems exit and maintenance of accurate payable records (Alkhataybeh, 2021; Rahayu
et al., 2020). The results also reveal capital budget management significantly influenced
organizational performance. Capital budgeting determines organizational profitability,
viability and value (Balarabe, 2020). SMEs would have to (re) evaluate capital budget
management strategies where periodic budget estimation are espoused (Warren and Jack,
2018; Zainuddin et al., 2021).
Capital budgeting decisions are crucial to the success or failure of any organization
(Demigurc, 2017; Mushaho et al., 2015). SMEs would have to (re) evaluate capital budget
management strategies where activity-based budgeting are advocated and financial
analysis conducted (Khurana et al., 2019; Nguyen, 2019). Effective financial management is a
cornerstone of efficient governance and sustainable development (Hammed Okikiola, 2019;
Nandom et al., 2019; Yusuf, 2016). The study highlights the significance of creating a system
for the improvement of financial management practices since financial management
practices guarantee effective resource utilization and business profitability (Brigham and
Ehrhardt, 2016; Singh et al., 2019).
Financial management practices ensure organizational competitiveness and viability
(Bismark et al., 2018; Hunjra et al., 2019; William, 2018). Brijlal et al. (2017) accentuate that
financially well-managed firms are operationally efficient. Consequently, SMEs would have
to develop a well-articulated and proactive financial management systems to ensure
competitiveness, sustainability, viability and financial competences.

Limitations and suggestions for future study

The results of this study should be considered in light of its limitations. The possibility that
the results could be the result of reverse causality or a causal link cannot be completely rule
out because of the cross-sectional nature of the study (Kelly et al., 218; Saunders et al., 2019).
Future longitudinal study is necessary (Carroll, 2019; Kneck and Audulv, 2019). The study
solely considered the subjective opinions of employees (Schein and Schein, 2019; Otoo, 2022).
Objective measures are encouraged in future studies (Hulland et al., 2018; Minbashian et al.,
2019). Common method bias is less likely when objective measures are used (Delpechitre
et al., 2018; Lin and Tsai 2019). The current study used various financial management
practices to assess its influence on organizational performance. However, to conduct an
exhaustive and focused inquiry, further theoretical and practical work is required to have a
comprehensive grasp of the nexus between financial management practices and
organizational performance. The generalizability of the findings will be constrained due to
the research’s SMEs focus. Applying the model to different fields or sectors might be
beneficial.
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Corresponding author
Frank Nana Kweku Otoo can be contacted at: frank_otoo@yahoo.com

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