Is Working Capital Management Value-Enhancing? Evidence from Firm Performance and Investments

36 Pages Posted: 8 Oct 2013 Last revised: 9 Dec 2014

See all articles by Nihat Aktas

Nihat Aktas

WHU - Otto Beisheim School of Management

Ettore Croci

Catholic University of the Sacred Heart of Milan

Dimitris Petmezas

Durham University Business School

Date Written: December 3, 2014

Abstract

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

Aktas, Nihat and Croci, Ettore and Petmezas, Dimitris, Is Working Capital Management Value-Enhancing? Evidence from Firm Performance and Investments (December 3, 2014). Available at SSRN: https://ssrn.com/abstract=2337207 or http://dx.doi.org/10.2139/ssrn.2337207

Nihat Aktas (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Dimitris Petmezas

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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