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Is working capital management value-enhancing? Evidence from firm performance and investments

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  • Aktas, Nihat
  • Croci, Ettore
  • Petmezas, Dimitris

Abstract

We examine the value effect of working capital management (WCM) for a large sample of US firms between 1982–2011. Our results indicate (i) the existence of an optimal level of working capital policy; and (ii) firms that converge to that optimal level (either by increasing or decreasing their investment in working capital) improve their stock and operating performance. We also document that corporate investment is the channel through which efficient WCM translates into superior firm performance. In particular, efficient WCM allows firms to redeploy underutilized corporate resources to higher-valued use, such as the funding of cash acquisitions.

Suggested Citation

  • Aktas, Nihat & Croci, Ettore & Petmezas, Dimitris, 2015. "Is working capital management value-enhancing? Evidence from firm performance and investments," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 98-113.
    • Handle: RePEc:eee:corfin:v:30:y:2015:i:c:p:98-113
    DOI: 10.1016/j.jcorpfin.2014.12.008
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    More about this item

    Keywords

    Working capital management; Performance; Investment; Risk;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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