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Working Capital Investment: A Comparative Study - Canada Versus the United States

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  • Abdul-Rahman Khokhar

    (Saint Mary's University, Canada)

Abstract

This study empirically compares the working capital investment of industrial firms and finds that Canadian firms invest less in working capital than their U.S. counterparts. Matched samples of 8,628 firm-year observations each from Canada and the U.S. are utilized covering the period 1988 to 2016. Compared to their U.S. counterparts, Canadian firms have a significantly lower cash conversion cycle, non-cash working capital to asset ratio and non-cash working capital to sales ratio. The difference in working capital investment is robust to variety of firm, industry and country controls as well as to year and industry fixed effects. The study also investigates the determinants of the lower investment in working capital by Canadian firms and finds that working capital investment is negatively moderated by short-term interest rates and positively associated with international operations.

Suggested Citation

  • Abdul-Rahman Khokhar, 2019. "Working Capital Investment: A Comparative Study - Canada Versus the United States," Multinational Finance Journal, Multinational Finance Journal, vol. 23(1-2), pages 65-102, March - J.
    • Handle: RePEc:mfj:journl:v:23:y:2019:i:1-2:p:65-102
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    References listed on IDEAS

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    More about this item

    Keywords

    working capital management; cash conversion cycle; working capital investment; short-term financial policies;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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