 Working capital balances and financial policyMark J. Flannery and Özde Öztekin Journal of Corporate Finance, 2024, vol. 87, issue C Abstract: A firm's working-capital account balances demonstrate substantial connections with its financial policy. Receivables and inventories are associated with lower asset volatility and higher future cash flow, and correlate with increased leverage. Conversely, payables show a positive association with shareholder return volatility and a negative correlation with future cash flow and are linked to decreased debt levels. In dynamic panel regressions estimated with system Generalized Method of Moments (GMM), a one standard-deviation increase in payables (receivables) is associated with a 0.42 (0.66) standard-deviation decrease (increase) in leverage. Furthermore, higher levels of inventories and receivables are linked with higher firm credit ratings, along with a preference for debt financing over equity issuance, while increased payables are linked with lower credit ratings and a tendency to favor equity financing over debt financing. The QuickPay regulatory shock, expediting payments and reducing receivables' volume and quality, diminished their collateral role and lowered debt sensitivity to receivables. Keywords: Working-capital; Inventories; Receivables; Payables; Capital structure; Financial leverage (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:87:y:2024:i:c:s0929119924000804 DOI: 10.1016/j.jcorpfin.2024.102618 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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