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Performance, working capital management, and the liability of smallness: A question of opportunity costs?

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  • Vivien Lefebvre

    (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)

Abstract

This article studies the relationship between working capital management and firm operating performance and focuses on the moderating effect of size. We use a large sample of 56,221 small, medium, and large firms from France, Germany, and Italy, and our results indicate that the impact of working capital management on performance strongly depends on size. We identify a higher sensitivity of performance to underinvestment in net operating working capital for small firms, but no higher sensitivity to overinvestment. These findings suggest that small firms experience high opportunity costs from lost sales when their net operating working capital is low. Financial constraints and lack of financial management are discussed as potential explanations because both are expressions of the liability of smallness.

Suggested Citation

  • Vivien Lefebvre, 2020. "Performance, working capital management, and the liability of smallness: A question of opportunity costs?," Post-Print hal-02968569, HAL.
    • Handle: RePEc:hal:journl:hal-02968569
    DOI: 10.1080/00472778.2020.1735252
    Note: View the original document on HAL open archive server: https://hal.science/hal-02968569
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