Is working capital management value-enhancing? Evidence from firm performance and investments

Nihat Aktas, Ettore Croci and Dimitris Petmezas

Journal of Corporate Finance, 2015, vol. 30, issue C, 98-113

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 (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (107)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:30:y:2015:i:c:p:98-113

DOI: 10.1016/j.jcorpfin.2014.12.008

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