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How do market imperfections affect working capital management?

Author

Listed:
  • Pedro J. García-Teruel

    (Universidad de Murcia)

  • Pedro Martínez Solano

    (Universidad de Murcia)

  • Sonia Baños Caballero

    (Universidad de Murcia)

Abstract

This paper examines whether Working Capital Management (WCM) is sensitive to market imperfections such as asymmetric information, agency conflicts or financial distress. We find that firms have a target investment in working capital and that they take decisions in order to achieve this. In addition, the results appear to support the hypothesis that the working capital competes with investment in fixed assets for the funds of the firms when they have financial constraints. Finally, we also find that WCM depends on bargaining power and other financial factors such as the availability of internal finance, cost of financing and access to capital markets. Este artículo analiza si la gestión del capital circulante está afectada por las imperfecciones de mercado tales como la asimetría informativa, los conflictos de agencia o las dificultades financieras. Los resultados muestran que las empresas tienen un nivel de inversión en capital circulante objetivo y toman decisiones con el fin de alcanzarlo. Además, los resultados parecen apoyar la hipótesis de que el capital circulante compite con los activos fijos por los fondos de las empresas cuando éstas tienen restricciones financieras. Finalmente, la gestión del capital circulante depende del poder de negociación y otros factores financieros tales como la disponibilidad de financiación interna, el coste de financiación y el acceso a los mercados de capitales.

Suggested Citation

  • Pedro J. García-Teruel & Pedro Martínez Solano & Sonia Baños Caballero, 2009. "How do market imperfections affect working capital management?," Working Papers. Serie EC 2009-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasec:2009-14
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasec/wpasec-2009-14.pdf
    File Function: Fisrt version / Primera version, 2009
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    References listed on IDEAS

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    3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    4. Vicente Cuñat, 2007. "Trade Credit: Suppliers as Debt Collectors and Insurance Providers," The Review of Financial Studies, Society for Financial Studies, vol. 20(2), pages 491-527.
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    Cited by:

    1. Dbouk, Wassim & Moussawi-Haidar, Lama & Jaber, Mohamad Y., 2020. "The effect of economic uncertainty on inventory and working capital for manufacturing firms," International Journal of Production Economics, Elsevier, vol. 230(C).

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    More about this item

    Keywords

    ciclo de efectivo; gestión del capital circulante; imperfecciones de mercado; datos de panel net trade cycle; working capital management; market imperfections; panel data;
    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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