Does the quality management system affect working capital management efficiency? Evidence from Polish firms

Abstract

This study explores the impact of adopting the quality management system according to the International Standardization for Organizations (ISO) standards called ISO 9001 on firms’ working capital management efficiency (WCME). This study analyzes Small- and Medium-Sized Enterprises (SMEs) in the Polish construction industry. Regression analysis, difference tests, and robustness checks were conducted to achieve the goals of this study. The regression analysis results confirm a limited positive relationship between firms implementing ISO 9001 and WCME. Additionally, the difference tests show no significant differences in WCME between firms that implemented ISO 9001 and those that did not. During the coronavirus pandemic, a sharp decrease in inventory management costs was observed in firms. Inventories did not linger in warehouses, so they did not generate unnecessary costs, but were quickly sold at high margins. The inventory turnover rates on different days were low. These results suggest that controlling stock levels and receivables during crises is essential because payment bottlenecks and delayed deliveries can occur quickly. The insights generated from this study demonstrate that Polish SMEs in the construction industry fail to realize optimum WCME. Therefore, policymakers in Poland must improve managers’ and shareholders’ awareness of the usefulness of working capital management (WCM).

Keywords:

• ISO
• working capital management
• COVID-19
• construction industry
• financial markets
• Poland

1. Introduction

The COVID-19 pandemic that started in early 2020 was a shock that primarily affected people’s health directly and had a significant impact on the economy, almost bringing it to a standstill (Fairlie, 2020; Gregurec et al., 2021; Habib, 2023; Habib & Mourad, 2023; Rodrigues et al., 2021). Fiscal policy was required to cushion the negative economic and social consequences of this shock. Support packages for households and companies were put together. Monetary policy plays a rather subordinate role in this context. Traditionally, monetary policy has supported the economy by making favorable financing conditions for private households, companies, and the state through interest rate cuts, thus stabilizing aggregate demand. This was hardly possible during the COVID-19 pandemic. However, monetary policy could prevent the crisis in the real economy from spreading to the financial sector, exacerbating the crisis in the real economy. Because of the COVID-19 pandemic, price movements have been violent. After the significant price slumps in equities and corporate bonds, a sharp decline in economic output has now been reflected in the first half of the year. The key question for an investment decision is whether and when there will be an economic recovery. In addition to falling share prices, the liquidity for securities trading has fallen sharply. Many securities can be traded only with increased price premiums or discounts. This phenomenon has already been observed in earlier financial crises, such as the 2008 financial crisis. This heightened uncertainty causes a simultaneous sell-off, amplifying the price action. In addition, technical market characteristics reinforce price movement, including a high proportion of passive funds, lower market depth due to regulatory requirements, and quantitative signals.

At the beginning of March 2020, it became increasingly clear that the COVID-19 crisis had spread quickly in Europe. The economy was hit hard by a combined supply and demand shock due to the spread of the virus and government measures to contain the pandemic, such as lockdowns and curfews. The supply of goods and services declined as companies faced material shortages owing to disrupted supply chains. They also lacked workers who had to stay home because of illness or quarantine measures. Thus, the companies were forced to limit their production. The overall economic demand collapsed due to the crisis-related shutdown of the economy and public life. Private households and companies cannot demand goods or services. The loss of income associated with the shutdown further amplified the drop in demand, as did the high level of uncertainty regarding the duration and extent of the negative economic effects of the crisis. This uncertainty caused private households to consume less and companies to invest less. Since this was, and still is, a global shock, demand fell worldwide, which means that the demand for export goods was also falling. Monetary policy measures to stabilize the economy generally start on the demand side. Interest rate cuts improve the financing conditions for private households, companies, and governments and thus stimulate aggregate demand. However, this stabilization was not possible during the COVID-19 crisis. Even the most favorable financing conditions did not significantly increase companies’ and households’ demand for goods and services during a shutdown. Therefore, the monetary policy aimed at stabilizing aggregate demand played a subordinate role in the acute crisis.

Accordingly, the key role of small and medium-sized enterprises (SMEs) operating in the market during the COVID-19 crisis is to select an appropriate financial management strategy that ensures business continuity. During this period, it became particularly important for SMEs to manage their financial security, which is decisively influenced by working capital and financial liquidity. In many papers, one can find studies that indicate that introducing appropriate quality management systems brings many benefits to businesses (Kakouris & Sfakianaki, 2019; Pacheco et al., 2022; Urbonavicius, 2005; Zimon & Zimon, 2019). Some studies show that the use of various types of tools and systems related to quality management improves the efficiency of the functioning enterprise, improves the control system of selected processes, has a favorable impact on financial results, and increases the efficiency of the use of assets (Heras-Saizarbitoria & Boiral, 2015; Kakouris & Sfakianaki, 2019; Zimon & Zimon, 2019). Despite the various types of benefits that enterprises obtain owing to the introduction of appropriate systems, quality management is generally the type of system used in large enterprises. Introducing such systems incurs costs, and the effects of particular quality management standards appear only after some time. Managers of SMEs, when spending financial resources, expect quick effects in the form of revenue or optimization of cost levels. In the case of quality management systems, the implementation time of the respective systems can be long, and the effects appear later and depend on the discipline of the employees. Often, the benefits obtained are not expressed in monetary terms or monetary values because, for example, they demonstrate improved management of assets or eliminate errors that previously occurred. In such a case, it is necessary to perform several calculations to obtain information on what enterprises have gained financial benefits and how introducing the relevant ISO standard has contributed to offsetting losses. Nowadays, during financial crises, it seems particularly important to manage the company in such a way as to avoid incurring unjustified costs and eliminate errors that can lead to the suspension of production or sales. Conducting research during the COVID-19 pandemic and evaluating the impact of introducing quality management systems on the efficiency of asset management provides new indications of whether it is worth investing in such solutions, especially in SMEs, which are especially vulnerable to various types of crises that could halt their operations or lead to bankruptcy.

2. Literature review

2.1. Theoretical background

Working capital is a buffer protecting the company against bankruptcy. Positive working capital and its management primarily keep the company in a good and healthy financial condition—“financial health” (Opler et al., 1999). The literature reports that working capital directly impacts the company’s financial liquidity (Aktas et al., 2015; Kasahun, 2020; Lazaridis & Tryfonidis, 2006; Soda et al., 2022), profitability (Boțoc & Anton, 2017; Maheshwari, 2014; Mardones, 2022; Oladimeji & Aladejebi, 2020; Panda & Nanda, 2018) and costs (Moussa, 2018; Olagunju et al., 2020; Panigrahi, 2017). There are also authors who claim that working-capital decisions have a positive effect on the efficiency of enterprise-asset management (Banerjee & Guha Deb, 2023; Le, 2019; Lind et al., 2012; Olaoye & Okunade, 2020). The literature presents three main classical strategies for managing net working capital: conservative, moderate, and aggressive (Lind et al., 2012; Zimon, 2021). The conservative strategy is to keep current assets high and short-term liabilities relatively low and it is a safe strategy.The aggressive strategy to keep current assets low compared to current liabilities. Managers try to maintain a slight advantage of current assets over current liabilities. The high level of receivables is because sales based on trade credit are directed to regular customers and to low credibility (Zimon, 2021). The moderate strategy is about minimizing the weaknesses of previous strategies and maximizing their benefits.

The scholarly discourse surrounding working capital delves into three primary rationales for maintaining cash reserves, as extensively documented in academic literature. The precautionary, transaction, and speculative motives pertain to the theoretical framework that posits cash as beneficial for firms and a robust safeguard against liquidity shortages (Habib & Dalwai, 2023; Mun & Jang, 2015). Cash is a necessary resource for firms to facilitate routine operations, address unexpected circumstances, and capitalize on potentially lucrative prospects that may emerge in the future (Habib & Dalwai, 2023; Martínez-Sola et al., 2018). Chang et al. (2017) stated that a firm’s cash reserves are theoretically balanced between benefits and costs.

The resource-based theory is extensively employed in the field of finance. The theory posits that organizations have the potential to attain a lasting competitive edge through effective resource utilization (Habib, 2023). Efficient utilization of these resources enhances and capitalizes on internal strengths while mitigating external environmental vulnerabilities (Habib, 2023; Habib & Mourad, 2022). In this regard, WCM is essential for efficiently utilizing these resources and a sustainable competitive edge. The resource-based theory perspective points out that WCM is one of the most critical strategies (Habib & Dalwai, 2023; Habib & Mourad, 2022), and when managed well, it enhances a firm’s value (Aktas et al., 2015; Baños-Caballero et al., 2014; Chamberlain & Aucouturier, 2021; de Almeida & Eid, 2014; Dhole et al., 2019; Habib, 2022). In addition, the trade-off and pecking order theories have been extensively employed in finance. According to the trade-off theory, attaining an optimal cash level is accomplished by considering the equilibrium between the costs and benefits associated with it (Habib & Dalwai, 2023). Additionally, the trade-off theory posits that firms should establish a specific threshold for their debt ratio, beyond which an increase would result in financial difficulties (Bahreini & Adaoglu, 2018; Habib & Dalwai, 2023). As proposed by (Myers & Majluf, 1984), the pecking order theory posits that there is no optimal level of cash holdings. Based on its theoretical framework, a firm experiencing a cash shortage initially relies on internal sources of funds. Further, debt is considered a more favorable option than equity if external financing is mandated, as equity may be associated with substantial issuing expenses, rendering it relatively more expensive than debt.

2.2. Hypotheses development

The COVID-19 pandemic crisis and the Russo-Ukrainian war have made it clear that managers should look for tools to ensure that businesses can function in times of crisis. Changes in corporate financial management strategies are evident worldwide (Belas et al., 2022; Clampit et al., 2021; Demiraj et al., 2022; Gajdosikova et al., 2022; Habib, 2023; Puławska, 2021). Managers seek appropriate methods, tools, and strategies to optimize costs and increase profits. After 2019, it became apparent that the priorities had changed. More attention has been paid to ensuring the continuity of a company’s operations. The continuity of an entity’s operations is ensured by its financial resources and inventories, the most critical components that build working capital and liquidity levels. Effective management of working capital provides companies with financial security and financial means to settle their current obligations, that is, liquidity (Aregbeyen, 2013; Chasha et al., 2022; Enqvist et al., 2014; Habib & Kayani, 2022; Habib & Mourad, 2022; Janaćković et al., 2022; Juan García‐Teruel & Martínez‐Solano, 2007; Jurgilewicz et al., 2022; Nguyen et al., 2020; Piwowarski et al., 2022). WCM is gradually becoming more important than profitability management because it maintains optimum levels of working capital and cash conversion cycles (CCC), ensuring the financial security of a company and optimum profit levels (Adam et al., 2017; Afrifa et al., 2014; Aregbeyen, 2013; Farhan et al., 2021; Habib, 2022; Habib & Dalwai, 2023; Heryán, 2020; Juan García‐Teruel & Martínez‐Solano, 2007; Mazanec, 2022a; Nazir & Afza, 2009; Rasyid, 2017). Many companies have seen a noticeable shift in the strategy of managing working capital and liquidity from intensely aggressive to safe and conservative (Arnaldi et al., 2021; De Rozari et al., 2015; Mazanec, 2022b; Prsa, 2020; Ševkušić et al., 2022; Tsuruta, 2019; Yousaf et al., 2021, 2021). Today, the shift to conservative strategies in WCM will enormously increase the operating costs of an entity but will also provide security in times of crisis. Classic WCM strategies may not work well in times of crisis because they assume the inefficient management of current assets and liabilities. Companies should start building new conservative strategies in times of crisis, because they presume inadequate control of their assets and liabilities. Building and ensuring the continuity of the entity’s operations are based mainly on managing receivables from customers and inventories. In this context, it is essential to introduce mechanisms and tools to optimize the level of inventories and receivables from customers during crises. Quality management systems are an effective tool for improving control in these areas, as shown in the literature (Salehi et al., 2019; Zimon & Zimon, 2020). The introduction of appropriate procedures based on quality management systems should optimize current assets and liabilities. A lack of control over managing existing assets can lead to excessively high stock levels. Uncontrolled increases in inventory levels, in turn, result in unjustified costs, and stocks may lose value or become damaged.

In the case of customer credit and the policy of managing receivables from customers, it is necessary to change strategies in times of crisis to reduce the length of trade credit granted to customers. In the case of receivables management, the COVID-19 crisis clearly showed that the blockage of deliveries led to a state in which goods became scarce, sometimes even unobtainable, increasing cash transactions. If sellers choose between trading credit and cash transactions, they select cash. Sales management during crises requires constant control. It should not be the case that a vendor has limited sales opportunities and can handle only a certain proportion of selected counterparties, usually strategic counterparties. In such a situation, comparing sales opportunities with orders from all the counterparties at a given moment is worthwhile. Selling only to strategic customers is a mistake. In the case of limited stock, it is worthwhile to distribute the available assortment appropriately among all essential contractors to the company. Failure to do so may lead to the departure of certain less-important customers, resulting in contractor loss costs. For SMEs, this is the most significant cost for a company. Recovering lost business is expensive, and every effort should be made to prevent a regular business partner from joining a competitor. Applying the relevant ISO 9001 standards can improve management control in the most critical areas of building working capital (Salehi et al., 2019; Zimon & Zimon, 2019, 2020). ISO procedures make it possible to avoid mistakes, which is particularly important in times of crisis.

ISO 9001 contains requirements for a quality management system applicable to any organization, regardless of size or type, which must demonstrate its ability to continuously provide products that comply with customer requirements and applicable regulations, and that strive to increase customer satisfaction (Aarts & Vos, 2001; Andres-Jimenez et al., 2020; Chiarini et al., 2020; Ukaegbu, 2014; Zimon, 2017a, 2017b; Zimon & Dellana, 2020; Zimon & Zimon, 2019). SMEs and large companies must use this standard. Introducing relevant ISO standards into a company brings benefits after a certain period in addition to costs. An organization’s benefits from implementing ISO 9001 and certifying the system can be divided into external and internal (Aarts & Vos, 2001; Zimon, 2017a, 2017b; Zimon & Dellana, 2020). Internal benefits may include ensuring the stability and repeatability of processes, ensuring and maintaining organizational governance through clearly defined operating procedures and the responsibilities and powers associated with them, and ensuring unambiguous data and information extracted from monitoring and measuring both products and services, as well as processes for use in managing the organization and its continuous improvement. Therefore, internal benefits are closely linked to WCM and liquidity assurance processes. External benefits may include improving a company’s image as a reliable business partner operating according to international standards and enhancing its competitiveness.

To date, several studies have analyzed the impact of ISO standards on the functioning of SMEs (Andres-Jimenez et al., 2020; Fonseca & Lima, 2015; Siltori et al., 2021; Sıtkı İ̇̇lkay & Aslan, 2012; Tarí et al., 2012). Therefore, it seems that the introduction of quality management systems will optimize and strengthen the level of net working capital, which will improve the financial security of enterprises. In turn, the basic elements that create the level of liquidity and profitability are costs, current assets and current liabilities. There are studies that indicate that the introduction of appropriate quality management systems affects the effectiveness of managing these individual components (Zimon, 2015; Zimon & Dellana, 2020). It is difficult to find studies that address the impact of ISO 9001 on the level of net working capital in SMEs.

In addition, during the COVID-19 crisis, ISO 9001 standards should be respected, and individual processes should be systematically controlled. Therefore, companies using ISO 9001 should achieve favorable results in the area of WCM, which will positively impact liquidity levels and profitability.

Based on the above, this study investigates the following hypotheses:

H₁: On average, there are significant differences in the WCME among SMEs regarding the adoption of ISO 9001.

H₂: Adopting ISO 9001 standards has a positive and significant impact on WCME.

3. Methodology

3.1. Data description

This research was conducted on a group of commercial enterprises operating in the construction industry. The units analyzed were classified as SMEs. The enterprises surveyed operate within industry-specific purchasing groups. For SMEs, functioning in multi-stakeholder organizations such as clusters or purchasing groups is an opportunity to stay in the market and fight for customers against market leaders or large companies. SMEs within purchasing groups benefit from economies of scale, which allow them to achieve high profitability and high levels of liquidity. During the COVID-19 pandemic, many SMEs faced financial problems and went bankrupt (Fabeil et al., 2020; Mazanec, 2022a; Rodrigues et al., 2021; Zimon et al., 2022). For the current study, units operating within purchasing groups were selected because the level of financial security in such multi-entity organizations is higher than that of units operating independently in the market. Therefore, we examined how the introduction of ISO 9001 quality management systems affects WCME. Suppose that units with ISO perform more favorably than companies that do not use ISO. In this case, the model of operating in purchasing groups using quality management systems may be a great safeguard for SMEs in times of crisis.

The construction industry was chosen for the study because it operated without hindrance in Poland during the COVID-19 pandemic. Poland has several industry-specific purchasing groups in the construction industry. Among these groups, 60 companies were active in 2020. Financial data from 42 companies (70% of all enterprises) were obtained for this study. The remaining companies do not provide information on their financial statements. The surveyed group was divided into SMEs using the ISO 9001 standard, and entities that did not use the ISO standard. Our sample included 42 firms with 84 firm-year observations. The enterprises analyzed operate in the largest purchasing group in the construction industry. Approximately 60 companies in Poland operate within these groups. In the study sample, only about 14 firms adhered to the ISO standards issued by the International Organization for Standardization. This study collected data on the COVID-19 period from 2020 to 2021.

3.2. Study model and variables measurement

This study explores the influence of adopting ISO 9001 standards on WCME. To examine the relationship, the regression model can be expressed as follows:

(1) $\begin{array}{c}WCM{E}_{i,t}={\beta }_0+\beta IS{O}_{i,t}+{\beta }_{2}RO{S}_{i,t}+{\beta }_{3}SIZ{E}_{i,t}+{\beta }_{4}LE{V}_{i,t}+{\alpha }_{i,t}\end{array}$(1)

Where WCMEi,t represents firms working capital management efficiency as a dependent variable proxied by the CCC as a wide measure used in the academic studies of WCME (Addin Al-Mawsheki, 2022; Ahmad et al., 2022; Hamshari et al., 2022; Kundu et al., 2022; Nyeadi et al., 2018; Talonpoika et al., 2014; Tiwari et al., 2023; Yousaf et al., 2021). It considers a measure that defines the period that firms bear to transform their resources investments into cash flows. It is calculated by the sum of the financial year’s days of outstanding sales and inventory after excluding payables’ financial year’s days. ISOi,t is measured as a dummy variable and takes one if a firm has implemented quality management systems and zero otherwise. It considers a management system that possesses a generic nature, rendering it suitable for implementation in organizations of varying sizes, both in the private and public sectors, encompassing industrial, commercial, and service-oriented entities (Drosos et al., 2017; Psomas et al., 2013; Sıtkı İ̇̇lkay & Aslan, 2012; Zimon & Dellana, 2020). Furthermore, to augment the precision of the model, a number of control variables were utilized, such as a firm’s return on sales (ROS), firm size (SIZE), and debt ratio (LEV). ROSi,t represents a firm’s return on sales as a control variable, as the literature confirmed that firms’ WCME is related to operating efficiency and affects their operational and financial security (Habib, 2022; Habib & Dalwai, 2023; Habib & Kayani, 2023; Le et al., 2018; Purwoto & Wahyu Estining Rahayu, 2018; Zhang, 2016; Zimon, 2021; Zimon & Tarighi, 2021). It is calculated by dividing yearly operating profit of a firm to its net sales. SIZEi,t represents a firm’s size as a proxy to lessen heteroscedasticity problems between firms (Dalwai et al., 2023; Habib & Dalwai, 2023; Habib & Mourad, 2023, 2023; Habib & Shahwan, 2020; Shahwan & Habib, 2020). LEVi,t represents a firm’s debt ratio as a proxy to control financial leverage between firms, calculated by total debt of a firm to its total assets (Dalwai et al., 2023; Habib & Dalwai, 2023; Habib & Mourad, 2023; Habib & Shahwan, 2020; Shahwan & Habib, 2020). αi, t symbolizes gaussian noises.

4. Results

4.1. Descriptive statistics

Table 1 presents descriptive statistics for the study variables. In Poland’s construction sector, the average WCME was 65.7, with a standard deviation of 35.5. The ISO criterion implementation average was 0.33, with a standard deviation of 0.47. This indicates that most Polish construction firms do not apply ISO standards to measure their quality management systems. The average ROS level was 0.06, with a standard deviation of 0.09. The average SIZE was 0.45, with a standard deviation of 0.5. Additionally, the average LEV was 0.43, and the standard deviation was 0.21.

Table 1. Descriptive statistics

Variable	Obs	Mean	Std. Dev.	Min	Max
WCME	84	65.7	35.5	−11	150
ISO	84	0.33	0.47	0.00	1.00
ROS	84	0.06	0.09	0.00	0.80
SIZE	84	0.45	0.50	0.00	1.00
LEV	84	0.43	0.21	0.05	0.84

Note: This table reports the descriptive statistics of the study variables. These variables include working capital management (WCME), quality management system (ISO), return on sales (ROS), firm size (SIZE), and leverage (LEV).

4.2. Correlation analysis

Results of Pearson’s correlation for the study variables are shown in Table 2, Panel A. ROS levels and ISO levels had a significant and positive correlation. This finding suggests that ISO standards influence firms’ sales returns. SIZE has a positive relationship with ISO standards. This indicates that large firms are motivated to implement the ISO standards. WCME and LEV correlate positively but insignificantly with ISO. Furthermore, the findings indicated that no explanatory variables exhibited coefficients exceeding 0.80. The absence of multicollinearity among the explanatory variables in Panel B of Table 2 is indicated by the fact that the highest variance inflation factor (VIF) value was 2.26, and the tolerance (1/VIF) value was 0.44.

Table 2. Pairwise correlations and multicollinearity results

Variable	CCC	ISO	ROS	SIZE	LEV
Panel A: Pairwise correlations.
WCME	1.000
ISO	0.147	1.000
ROS	0.245*	0.250*	1.000
SIZE	0.086	0.727*	0.248*	1.000
LEV	−0.541*	0.027	−0.205	0.155	1.000
Panel B: Variance inflation factor and tolerance.
Test		ISO	ROS	SIZE	LEV
VIF		2.17	1.15	2.26	1.11
1/VIF		0.46	0.87	0.44	0.90

Note: This table reports the results of the pairwise correlations and multicollinearity tests of the study variables. These variables include working capital management (WCME), quality management system (ISO), return on sales (ROS), firm size (SIZE), and leverage (LEV). * Significant at 0.05 level.

4.3. Differences analysis

Table 3 presents the z-test results to verify the potential differences in WCME between firms that care about implementing ISO standards and those that overlook them.

Table 3. Differences analysis

Variables	Means		Levene’s Test for Equality of Variances		Z-test for Equality of Means
	ISO adoption	ISO neglection	F	Sig.	Z	Sig.
WCME	73	62.02	0.512	0.476	1.345	0.182

Note: This table reports the results of the independent sample test to verify the significant differences between the means of the study groups in terms of ISO standard adoption.

The Levene’s equality of variances tests indicated that there were no statistically significant differences in the variance of WCME between the groups at a significance level of 0.05 (F-value = 0.512; p-value = 0.476). In addition, the WCME means of firms that implemented ISO standards were higher than those that did not, at 73 and 62, respectively. However, the independent-sample Z-test results indicated that the WCME means for the two groups were equal at a 0.05 significant level (Z-value = 1.345, P-value of 0.182). The study found no statistically significant variance in the average values of WCME between companies that prioritized the implementation of quality management systems and those that did not. Thus, the null hypothesis H1 cannot be accepted with a significance level of 0.05.

4.4. Regression analyses

The following section provides an exposition of the outcomes of the regression analysis. Table 4 shows the regression analysis results for the first and second periods of the COVID-19 pandemic.

Table 4. Regression analysis per period

Independent variables	Coef.	Std. err.	t	P>|t|	[95% conf. interval]
Panel A: The first period of the COVID-19 pandemic
ISO	2.898	13.51	0.21	0.831	−24.48	30.28
ROS	24.61	42.54	0.58	0.566	−61.58	110.8
SIZE	11.32	12.99	0.87	0.389	−14.99	37.65
LEV	−101.9	23.50	−4.34*	<0.01	−149.53	−54.32
_cons	105.5	12.14	8.69*	<0.01	80.91	130.11
Num. of obs = 42			R-squared = 0.393
F(4, 37) = 5.98			Adj R-squared = 0.327
Prob > F = <0.01
Panel B: The second period of the COVID-19 pandemic
ISO	9.457	16.11	0.59	0.561	−23.19	42.12
ROS	180.2	173.3	1.04	0.305	−170.9	531.2
SIZE	−2.547	16.53	−0.15	0.878	−36.04	30.94
LEV	−81.54	25.18	−3.24*	<0.01	−132.6	−30.53
_cons	85.96	14.85	5.79*	<0.01	55.88	116.04
Num. of obs = 42			R-squared = 0.303
F(4, 37) = 4.03			Adj R-squared = 0.228
Prob > F = <0.01

Note: This table reports the results of regression estimations using ordinary least squares (OLS) regression. * Significant at the 0.05 level. The variables include quality management system (ISO), return on sales (ROS), firm size (SIZE) and leverage (LEV).

The findings for the initial phase of the pandemic are displayed in Panel A. At a significance level of 0.05, it was found that ISO, ROS, and SIZE had positive but statistically insignificant effects on WCME. In contrast, the impact of LEV on WCME was found to be statistically significant and negative at a significance level of 0.05. The findings for the second period are presented in Panel B. The findings indicate that there was no significant difference between the results obtained during the pre-period and the current study. Specifically, the influence of ISO and ROS on WCME remained positive but insignificant at a significance level of 0.05. These results indicate that the COVID-19 pandemic periods were the same. The second period shows no change compared to the first period regarding the relationship between adopting ISO 9001 standards and ROS with WCME. These findings regarding the analysis of pandemic periods would add to those of prior studies that investigated the impact of ISO standards on the functioning of (Aarts & Vos, 2001; Andres-Jimenez et al., 2020; Fonseca & Lima, 2015; Siltori et al., 2021; Sıtkı İ̇̇lkay & Aslan, 2012; Tarí et al., 2012; Zimon, 2015, 2017a, 2017b; Zimon & Dellana, 2020).

Table 5 presents the regression analysis results for the study period. The Hausman test results indicated the use of a random-effects technique. The findings indicate that ISO, ROS, and SIZE have positive but statistically insignificant impacts on WCME, with a significance level of 0.05. The present findings would contribute to the existing body of research that has examined the effects of ISO standards on the operational performance of SMEs (Aarts & Vos, 2001; Andres-Jimenez et al., 2020; Fonseca & Lima, 2015; Siltori et al., 2021; Sıtkı İ̇̇lkay & Aslan, 2012; Tarí et al., 2012; Zimon, 2015, 2017a, 2017b; Zimon & Dellana, 2020). In contrast, firm leverage negatively and significantly impacts a firm’s WCME at a significance level of 0.05. Thus, regarding the analysis developed for the sample, it is confirmed that there is a positive relationship between firms implementing quality management systems and WCME. Despite the lack of statistical significance at the 0.05 level and incomplete support for hypothesis H2, this finding underscores the importance of prioritizing the implementation of effective quality management strategies. Doing so can enhance the efficacy of capital management and bolster return on sales, even if progress is modest. It is worth noting that the pursuit of continuous improvement often commences with a single step (Habib & Dalwai, 2023; Habib & Mourad, 2023; Mourad et al., 2021, 2022). Applying relevant ISO 9001 standards can improve management control of working capital (Salehi et al., 2019; Zimon & Zimon, 2019, 2020). Furthermore, firm decision-makers should consider the structure of current assets and liabilities and their role in improving WCME toward best practices.

Table 5. Regression analysis over the study period

GLS regression
Number of obs = 84			Wald chi^2(4) = 16.18
R-squared: Overall = 0.3232			Prob > chi^2 = 0.0028
Independent variables	Coef.	Std. err.	Z	P>|Z|	[95% conf. interval]
ISO	4.334	11.64	0.37	0.710	−18.49	27.16
ROS	6.093	18.80	0.32	0.746	−30.76	42.94
SIZE	9.349	7.975	1.17	0.241	−6.281	24.98
LEV	−68.83	18.82	−3.66*	<0.01	−105.7	−31.93
_cons	89.22	9.991	8.93*	<0.01	69.63	108.8

Note: This table reports the results of regression estimations using generalised least squares (GLS) regression. * Significant at the 0.05 level. The variables include quality management system (ISO), return on sales (ROS), firm size (SIZE) and leverage (LEV).

4.5. Endogeneity issues and robustness analyses

4.5.1. Omitted variable bias

Endogeneity is a critical concern because it precludes causal assertions from being made (Dalwai et al., 2023; Habib, 2022). We used Ramsey’s test to verify omitted variable bias. The p-value is 0.626. Accordingly, the test results indicated that the model was sound.

4.5.2. Robustness tests

Supplementary analyses were conducted to assess the soundness of the results through the implementation of robustness tests. The study conducted robustness tests to compare the outcomes of the fundamental model with those derived from supplementary methodologies and models.

Table 6 presents the regression analysis estimates obtained through the ordinary least squares (OLS) technique (Column 2) to confirm the consistency of the findings when alternative estimation methods are employed. The findings indicate that the key variables’ coefficients exhibit similar directionality and statistical significance as those observed in the fundamental analysis presented in Table 5. As a supplementary measure of robustness, the study conducted a Generalized Least Squares (GLS) estimation utilizing the bootstrap method with 5000 replications (Column 3). The findings indicate that the key variables’ coefficients exhibit the same direction and level of significance as those observed in the fundamental analysis, as presented in Table 5. Additionally, a GLS regression was conducted in the study using a first-order autoregressive AR(1) disturbance, as shown in Column 4. The findings indicate that the key variables’ coefficients exhibit the same direction and level of significance as those observed in the fundamental analysis presented in Table 5. The findings indicate a higher level of confidence.

Table 6. Robustness tests

Independent variables	Analysis using the OLS technique	Analysis using the bootstrap technique	Analysis using AR(1) disturbances	Analysis using an alternative measure for CCC	Analysis using an alternative measure for ROS
ISO	4.969 (10.12)	4.334 (9.447)	4.611 (11.16)	0.190 (0.758)	6.281 (10.54)
ROS	37.99 (39.94)	6.093 (113.01)	7.202 (20.08)	0.552 (1.273)	-
ROA	-	-	-	-	12.37 (60.95)
SIZE	6.965 (9.781)	9.349 (6.305)	9.002 (8.195)	0.259 (0.533)	7.583 (10.44)
LEV	−92.09* (16.53)	−68.83* (27.94)	−74.11* (18.34)	−5.928* (1.234)	−94.45* (17.70)
_cons	98.32* (8.354)	89.22* (17.05)	91.49* (9.588)	5.519* (0.651)	99.70* (10.72)
Num. of obs	84	84	84	84	84
F (Prob > F)	9.85 (<0.01)	-	-	-	9.53 (<0.01)
Wald chi^2 (Prob > chi^2)	-	12.19 (<0.01)	19.16 (<0.01)	24.39 (<0.01)	-
R-squared	0.3329	0.3232	0.3257	0.2770	0.3256
Adj R-squared	0.2991	-	-	-	0.2914

Note: This table reports an additional analysis for the robustness test; * indicate that coefficients are statistically significant at 0.05 level; Standard errors in the model are reported in parentheses; The variables include quality management system (ISO), return on sales (ROS), return on assets (ROA), firm size (SIZE) and leverage (LEV).

Furthermore, a regression analysis utilized an alternative methodology for assessing crucial variables. The present investigation employs the liquidity ratio (LIQ) as a substitute dimension of WCME. LIQ is computed by dividing a company’s current assets by its current liabilities. This approach has been previously utilized in the academic literature by Habib and Mourad (2022). The findings in Column 5 indicate that the coefficients of the primary variables exhibit similar directionality and statistical significance as those presented in the fundamental analysis depicted in Table 5. As a supplementary measure of reliability, we employ return on assets (ROA) as an alternative metric for a company’s ROS. ROA is computed by dividing a firm’s net income by its total assets. The findings in Column 6 indicate that the key variables’ coefficients exhibit the same direction and level of significance as those observed in the fundamental analysis presented in Table 5. Thus, the results exhibited increased assurance and confidence in outcomes.

5. Discussion

Surveys have shown that most companies do not want to apply ISO 9001 standards (Pacana & Ulewicz, 2020). This is generally because the benefits of ISO take a long time to materialize. The introduction time for the relevant standards and individual audits also takes a long time and requires changes in employee behavior. Many new documents have been introduced that are generally perceived negatively by employees. The analysis showed that the largest companies implemented ISO standards, with an average annual turnover of over EUR 25 million.

This study explored the impact of ISO 9001 quality management system standards on WCME in SMEs during the COVID-19 pandemic in Poland. Regarding the analysis developed for the sample of 42 firms, it was confirmed that there is a positive relationship between firms implementing quality management systems and the WCME. Despite the lack of statistical significance at the 0.05 level, the observed relationship provides a potential avenue for organizational leaders to prioritize implementing quality management systems to enhance the efficacy of capital management practices. Even incremental progress towards this goal can be valuable, as pursuing continuous improvement often requires taking initial steps (Basyith et al., 2021; Habib & Dalwai, 2023; Habib & Mourad, 2023; Mourad et al., 2021, 2022). Furthermore, firm decision-makers should consider the construct of current assets and liabilities and their connections to improve WCME toward best practices. In addition, the WCME and ROS means of firms that implemented ISO standards were higher than those that did not. The findings of the independent-sample Z-test revealed that the means of WCME in both groups were equivalent, with a significance level of 0.05. The study found no statistically significant disparities in the averages of WCME and ROS among companies that prioritized the implementation of quality management systems and those that did not. When comparing the studies conducted, it can be seen that the greatest benefit for companies using ISO is profitability. Several studies confirm that the introduction of the ISO improves cost management in units, which increases profitability (Ševkušić et al., 2022; Sıtkı İ̇̇lkay & Aslan, 2012). However, these studies were unrelated to the COVID-19 pandemic. Assuming that the level of liquidity in both groups of companies is similar, and the profitability results in the group of companies with ISO are higher, it seems worthwhile to introduce ISO systems because of their cost-effectiveness. Several studies have demonstrated high profitability when companies employ aggressive WCM strategies. Studies show that the working capital and liquidity levels fall within the liquidity ratio model range. In addition, previous studies in non-crisis periods confirm that introducing ISO helps improve the efficiency of a company’s operations. Studies have shown that ordering processes for managing customer receivables can reduce costs and positively impact profitability. Reducing the level of customer financing and shortening trade credit periods strongly reduce costs concerning the management of receivables during the COVID-19 pandemic.

When we wrote this article (end of 2022), we were already in the period after the COVID-19 pandemic, but a crisis resulting from the war in Ukraine emerged. It would seem that company managers, especially those in small enterprises, having learned from the experience of the COVID-19 pandemic, should develop certain assumptions and mechanisms in their companies, the implementation of which will ensure a secure strategy for managing external capital. For SMEs, it seems necessary to function together in various types of multi-actor organizations, such as purchasing groups or clusters. Together, these functions increase the level of security. Additionally, it is worthwhile to introduce quality management systems because they allow for a higher level of profitability than companies without ISO standards. Within purchasing groups, introducing quality management systems or other management support tools will significantly strengthen the competitive position of companies in the market and will certainly be less costly. Costs are a barrier that limits SMEs, particularly during crises. This study was conducted on a group of commercial enterprises operating in the construction industry, and the findings were limited to 2020–2021. These findings can be generalized to other firms beyond the construction industry based on the results of the robustness analyses. The upcoming examination may include other elements, such as managerial ability, intellectual capital, earnings management, and capital structure, which are notable features that may affect WCME.

6. Conclusion

This study explored the impact of ISO 9001 quality management system standards on WCME in SMEs in the construction industry during the COVID-19 pandemic in Poland. The research carried out verified the hypotheses positively. Indeed, companies that use quality management systems and have better sales profitability are unsatisfying regarding WCME because of the COVID-19 pandemic consequences. Thus, mechanisms derived from quality management systems should be supported to increase enterprises’ control and financial security, reflected in the results on sales profitability and working capital levels. Earlier studies before the COVID-19 pandemic showed that introducing quality management systems positively impacted the management of enterprises’ finances (Heras-Saizarbitoria & Boiral, 2015; Kabir Hassan et al., 2023; Kakouris & Sfakianaki, 2019; Zimon & Zimon, 2019).

The research conducted in the paper confirms that even during the pandemic crisis, where there was a blackout in many areas of the economy, companies using ISO achieved favorable results in the WCME. This is very important information for managers because net working capital is the basis for the safe operation of companies. Improving the efficiency of its management by introducing appropriate quality management systems can reduce the need for very expensive foreign capital such as bank credit and loans (Clampit et al., 2021; Kayani, 2023; Zimon et al., 2022). The current situation in the world, especially the crisis on the eastern border and border blockades in Poland, Belarus, Ukraine and Finland, shows that SMEs should revise their working capital management policy in a safe, conservative direction. Interruptions in deliveries will force better control of inventories and short-term receivables, and it seems that quality management systems are able to improve the quality of their management and avoid incurring unnecessary costs

During the pandemic, a sharp decrease in inventory management costs was observed among the surveyed companies. Inventories did not linger in warehouses, so they did not generate unnecessary costs but were quickly sold at high margins. Inventory turnover rates on different days reached low levels. In times of crisis, it is particularly important to control stock levels and receivables because payment bottlenecks and delayed deliveries can occur very quickly, potentially leading to the collapse of companies. Government assistance is the only salvation for companies that lose their sources of financing and supply bottlenecks. In Poland, several packages have been introduced to companies to save them from bankruptcy. Many enterprises benefited from this, but there were sectors for which aid was insufficient, and many entities collapsed, such as tourism, restaurants, and catering. This study’s results suggested that controlling stock levels and receivables in crisis is particularly important because payment bottlenecks and delayed deliveries can occur quickly.

Therefore, these findings are important for decision-makers to enhance the WCM process for achieving financial security, which is the basis for building a competitive position. To increase control in financial management, it is necessary to look for and introduce new tools and methods to support the management process. This is confirmed by research by other authors who point to changes in SMEs management strategies in the area of working capital (Akgün & Karataş, 2021; Iqbal et al., 2023; Kayani, 2023; Salehi et al., 2019). Adapting and enhancing quality management systems seems a good solution for large and small enterprises.

Disclosure statement

No potential conflict of interest was reported by the author(s).