The Impact of Working Capital Management on Firm Value” Evidence from Public Listed Companies in the Manufacturing Sector
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2019-08-19
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en
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This study investigates the impact of working capital management on firm value. I find empirical evidence that optimizing working capital increases the firm value. The results reveal that one-day reduction in conversion period of working capital increases a firm’s Tobins Q by 12 basis-points on an average. However, this relationship is influenced by the financing constraints faced by a firm whereby the effect of working capital efficiency is more severe for financially constrained companies. These results are obtained by using an extensive dataset of approximately 4,500 public listed companies from 20 countries, covering a span of 11 years. Furthermore, I examine the impact of each component of cash conversion cycle on firm value. The findings suggest that lessening receivable and inventory turnover period result in higher firm value by around 19 and 8 basis-points on an average respectively. Conversely, payable turnover period is positively associated with firm value at the degree of 10 basis-points. Additionally, I extend the previous study by testing and discovering the non-linear relationship between working capital and firm value which implies the existence of an optimal investment in working capital. Robustness checks are conducted using the firm performance indicators, namely return on assets and return on equity.
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Faculteit der Managementwetenschappen