The Impact of Working Capital Components on Firm Value in US Firms

Joseph Brian Cumbie and John Donnellan

International Journal of Economics and Finance, 2017, vol. 9, issue 8, 138-150

Abstract: Working capital is an important part of any businesses day-to-day operations. However, most businesses do not take into consideration that continuous investment into working capital does not maximize firm value. The specific problem addressed was firm managers that do not understand the optimal level for each component of working capital create sub-optimal value firm; leading to diminished investment returns for shareholders. For this study, 140 firms for the years 2003-2012 were selected from a stratified random sample of firms listed on the Russell 2000 index. Accounts receivable days outstanding, accounts payable days outstanding, and inventory days outstanding were regressed on economic value to determine whether a curvilinear relationship existed. All three models showed a statistically significant relationship to firm value, F(6, 2268), p

Keywords: accounts receivable; accounts payable; inventory; working-capital management; firm value (search for similar items in EconPapers)
Date: 2017
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