Working capital dynamics

Gaurav Singh Chauhan
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Gaurav Singh Chauhan: Department of Finance and Accounting, Indian Institute of Management Indore, Indore, India

Australian Journal of Management, 2021, vol. 46, issue 1, 51-75

Abstract: We assess short-run variations in firms’ working capital allocations in light of finding persistence in these allocations in the recent literature. Specifically, we study the extent and speed of mean reversion in firms’ working capital allocations to evaluate if firms tend to follow firm-specific value-maximizing optimal allocations. Furthermore, we assess whether and to what extent firms trade off their working capital to accommodate capital expenditure shocks. While we find frequent inter-temporal offsetting movements in working capital allocations in the short run, we do not find evidence of a systematic trade-off between working capital and fixed asset investments. JEL Classification: G30, G31, G32

Keywords: Asset allocation; investment trade-off; mean reversion; short-run variations; working capital (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:46:y:2021:i:1:p:51-75

DOI: 10.1177/0312896220911440

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