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Intrinsic and External Values of Liquidity and Optimization

In: Value-Based Working Capital Management

Author

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  • Grzegorz Michalski

Abstract

This chapter discusses the relationship between firm value and business risk sensitivity. The chapter starts with a presentation of intrinsic liquidity value and firm reactions to market liquidity value. This is the basis for target liquidity level in the enterprise. Liquid assets are the main part of working capital assets, so the next part of the chapter focuses on working capital investment strategies and strategies of financing such investments in working capital in the context of firm value creation. The chapter concludes that, from a firm-value-creation point of view, more risk-sensitive entities should use flexible-conservative strategies, while less risk-sensitive entities have the freedom to use restrictive-aggressive strategies. In the context of a crisis, this is the clear answer and explanation for higher levels of working capital investments observed empirically during and after a crisis.

Suggested Citation

  • Grzegorz Michalski, 2014. "Intrinsic and External Values of Liquidity and Optimization," Palgrave Macmillan Books, in: Value-Based Working Capital Management, chapter 3, pages 77-125, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-39183-4_4
    DOI: 10.1057/9781137391834_4
    as

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