An analysis of working capital efficiency and shareholder return

Greg Filbeck (), Xin Zhao and Ryan Knoll
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Greg Filbeck: Penn State Erie, the Behrend College
Xin Zhao: Penn State Erie, the Behrend College
Ryan Knoll: Penn State Erie, the Behrend College

Review of Quantitative Finance and Accounting, 2017, vol. 48, issue 1, No 10, 265-288

Abstract: Abstract Since 1997, CFO Magazine has published a ranking of 1000 companies in its “Working Capital Scorecard.” Our research explores the question as to whether working capital management practices based on the accounting metrics used by CFO Magazine serve as a basis for investor-based strategies for superior return generation. We examine the stock performance of top ranked companies from 1997 to 2012 against benchmark portfolios. Controlling for market, market capitalization, book to market, momentum factors, liquidity factors, and corporate governance; the higher ranked firms produce statistically higher excess returns than bottom ranked firms. In bull market periods, firms with superior working capital management outperformed their counterparts on a raw and risk-adjusted basis. These top ranked firms also provide statistically significant active returns regardless of market cycle. In sum, our results indicate that shareholders reward firms with superior working capital management strategies with higher raw and risk-adjusted performance over longer holding periods across the economic cycle especially in bear markets cycles.

Keywords: Working capital management; Portfolio management; Corporate finance; Short-term financing policy (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-015-0550-0

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