The Moderating Effect of Economic Policy Uncertainty on the Relationship Between Working Capital Management Policy and Financial Distress: Evidence from Egyptian Firms

This study examines the impact of working capital management policy (WCMP), including working capital investment policy (WCIP), working capital financing policy (WCFP), and cash holding policy (CHP) on financial distress (FD) among non-financial firms listed on the Egyptian Stock Exchange during 2010–2024. FD is proxied by the Altman Z-score, where higher values indicate lower distress risk. The study further investigates whether economic policy uncertainty (EPU) moderates the relationship between WCMP and FD. Using panel data analysis and the Fixed Effects Model, the results show that conservative WCIP and higher cash holdings significantly reduce FD risk, whereas greater reliance on short-term financing increases firms’ vulnerability to distress. The findings also reveal that EPU amplifies the effects of WCMP on FD. Overall, the study highlights the strategic importance of prudent liquidity management in enhancing firms’ financial resilience in emerging market environments characterized by macroeconomic uncertainty.