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Are working capital decisions truly short-term in nature?

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  • Chauhan, Gaurav Singh

Abstract

We investigate the extent of short-term flexibility in firms' working capital management decisions. Contrary to the firms' perceived ability to frequently modulate their working capital allocations, we find systematic and persistence differences in working capital allocations across and within industries. Specifically, industries and firms within industries with relatively higher or lower working capital allocations remain so for a sustained period of time, often exceeding 15 years. Contrary to the past literature suggesting that such allocations are driven by firms' concerns over improving inter-temporal cash flows and sales or absorbing shocks to their capital expenditure schedules, we find that firm-specific time-invariant factors rather primarily drive them.

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  • Chauhan, Gaurav Singh, 2019. "Are working capital decisions truly short-term in nature?," Journal of Business Research, Elsevier, vol. 99(C), pages 238-253.
    • Handle: RePEc:eee:jbrese:v:99:y:2019:i:c:p:238-253
    DOI: 10.1016/j.jbusres.2019.02.032
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