Working Capital Management and Shareholders' Wealth

Robert Kieschnick, Mark Laplante and Rabih Moussawi

Review of Finance, 2013, vol. 17, issue 5, 1827-1852

Abstract: We provide the first empirical study of the relationship between corporate working capital management and shareholders' wealth. Examining US corporations from 1990 through 2006, we find evidence that: the incremental dollar invested in net operating working capital is worth less than the incremental dollar held in cash for the average firm; the valuation of the incremental dollar invested in net operating working capital is significantly influenced by a firm's future sales expectations, its debt load, its financial constraints, and its bankruptcy risk; and the value of the incremental dollar extended in credit to one's customers has a greater effect on shareholders' wealth than the incremental dollar invested in inventories for the average firm. Copyright 2013, Oxford University Press.

Date: 2013
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