Purpose The purpose of this paper is to explore the potential benefits of an optimal vs observed working capital; the latter being measured by cash conversion cycle (CCC). Optimal CCC is defined and measured as the CCC that maximizes sales in the last four quarters. The initial exploratory results show that optimal CCC has been shorter than the observed. In addition, shorter CCC is accompanied by higher return on investment. Design/methodology/approach The authors use various statistical tools to analyze the differences between determinants of observed and optimal CCC. These statistical tools include Johansen cointegration test, linearity, normality tests, cointegration regression and Granger causality. The authors also use the benefits of discriminant analysis in order to reach a Z-score model that can be used for monitoring the move from an observed to optimal working capital. Findings The results show that: significant association exists between volatility of sales and CCC; sales volatility and lagged growth of sales carry relatively the highest weights when a firm moves from observed to optimal CCC; shorter CCC is associated significantly with higher profitability; the observed CCC adjusts to an optimal level; as inflation rises causing potential rise in cost of goods sold, firms prefer staying away from optimal levels of working capital; as economic growth slows down, firms stay at the current level of observed working capital; the results are subject to industry and size effects; and the DJIA and NASDAQ listed firms adjust observed CCC to optimal level slowly. Originality/value This paper offers three advances in the literature. The first advance is that the paper determines an optimal level of working capital empirically. To the best of the authors’ knowledge up to the date of submission, other related studies did not include an empirical solution to determine optimal working capital. The second advance is that the paper develops an empirical discriminant model that can be used for monitoring firms’ move from an observed to optimal working capital. The third advance is that optimal working capital shows the empirical integration between short-term and long-term investments that results in an improvement to firm’s liquidity and profitability.

This paper uses the event study methodology to analyze the impact of unexpected political event on stocks abnormal returns. The objective is twofold. The first is to reach robust estimates of stocks abnormal returns. The second is to reach robust estimates of the effects of unexpected political events on stocks abnormal returns. Design/methodology/approach: This paper experiments with three different methods to estimate stocks abnormal returns, namely: market model, mean-adjusted model and market-adjusted model. The sample includes the firms listed in the leading index in Egypt stock exchange (EGX30). The statistical tests, Anderson-Darling test for normality, Wilcoxon rank-sum test for comparing the significance of the estimates, and Breusch-Pagan, Cook-Weisberg test for heterogeneity of abnormal returns. Findings: The results indicate that (a) statistical differences between the three estimates exist, which indicates that the three methods of abnormal return estimation are not substitutes, or alternatives, to each other, (b) that is, the political event is considered an anomaly which has idiosyncratic effects. This is contrary to the common belief that political events have systematic effects. Originality/value: The contribution of this paper is twofold. First, the estimation of abnormal returns must be examined for robustness in order to ensure reliability. Second, the results offer robust evidence that political risk premium is an anomaly, which is a call for stock market participants not to panic. Eventually, it saves investors' wealth.