Is Working Capital Management Value-Enhancing? Evidence from Firm Performance and Investments
36 Pages Posted: 8 Oct 2013 Last revised: 9 Dec 2014
Date Written: December 3, 2014
We examine the value effect of working capital management (WCM) for a large sample of US firms between 1982-2011. Our results indicate (i) the existence of an optimal level of working capital policy; and (ii) firms that converge to that optimal level (either by increasing or decreasing their investment in working capital) improve their stock and operating performance. We also document that corporate investment is the channel through which efficient WCM translates into superior firm performance. In particular, efficient WCM allows firms to redeploy underutilized corporate resources to higher-valued use, such as the funding of cash acquisitions.
Keywords: Working Capital Management, Performance, Investment, Risk
JEL Classification: G31, G32
Suggested Citation: Suggested Citation