The impact of working capital management on credit rating

Ala’a Adden Abuhommous (), Ahmad Salim Alsaraireh () and Huthaifa Alqaralleh ()
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Ala’a Adden Abuhommous: Mutah University
Ahmad Salim Alsaraireh: Mutah University
Huthaifa Alqaralleh: Mutah University

Financial Innovation, 2022, vol. 8, issue 1, 1-20

Abstract: Abstract This study investigates the possible nonlinear relationship between working capital and credit rating. Furthermore, it examines the relationship between the three components of working capital (inventory, accounts receivable, and accounts payable) and a firm’s credit rating. Employing data for U.S listed firms for the period between 1985 and 2017, the results of our ordered probit model show a nonlinear relationship between working capital and its components and credit rating. Finally, we find that the deviation from the optimal working capital adversely affects the credit rating. The results of this study are of significant importance for policy makers, managers, decision makers, and credit-rating agencies, as they help highlight the importance of working capital management for a firm’s credit rating.

Keywords: Credit rating; Working capital management; Finance; Investment; Trade credit (search for similar items in EconPapers)
JEL-codes: G1 G12 G31 G33 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1186/s40854-022-00376-z

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