Are more sustainable firms able to operate with lower working capital requirements?

Victor Barros, Pedro Fontes Falcão and Joaquim Miranda Sarmento

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: This study provides evidence on the relationship between working capital management (WCM) and firms’ sustainability level covering 1,394 US publicly-listed firms in the period 2002-2020. We find that firms with higher ESG scores operate with lower working capital requirements and a shorter cash conversion cycle, although the effect comes entirely from the environmental and social pillars. The inconclusive result for the governance pillar reinforces the role of sustainability on WCM. Outperforming firms in sustainability scores have a lesser need for cash than the industry average. Overall, our findings highlight that WCM optimization may be attained following investment in firms’ sustainability.

Keywords: Working capital management; Cash conversion cycle; Sustainability; ESG (search for similar items in EconPapers)
JEL-codes: G30 G31 Q56 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004025

DOI: 10.1016/j.frl.2021.102407

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