This paper 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.

Understanding the factors that explain firms' growth is a fundamental stream of research in entrepreneurship, management, and economics. The strong motivation to study firm growth is likely because economic public policies often target supporting growth to foster economic development and enhance

Using arguments from the behavioral theory of the firm, agency theory, and the literature on internal capital markets, this article investigates the relationship between financial slack and firms’ profitability in standalone versus business group–affiliated firms. Using a large sample of French privately held firms, we show that there is a quadratic, inverse U-shape relationship between financial slack and profitability for privately held firms. We observe that the relation is steeper for business group affiliated firms than for standalone firms, which is consistent with the idea that firms in business groups are in competition for the business groups resources. Moreover, we explore whether business groups characteristics and position and weight of a given affiliated firm in the business group organization influence the impact of financial slack on profitability. Our results show that for firms that are closest to the business group head firm and that have a higher weight in the business groups, the quadratic, inverse U-shaped relationship is steeper. These findings suggest that the bargaining power that firms have in business groups plays an important role in explaining the relation between financial slack and profitability. JEL CLASSIFICATION: G32, L22 and L25.