Net operating working capital and firm value: A cross-country analysis

Baños-Caballero, Sonia; García‐Teruel, Pedro J.; Martínez‐Solano, Pedro

doi:10.1177/2340944420941464

Cited by 26 publications

(19 citation statements)

References 57 publications

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“…In a global context, the problematics of working capital management represent an ongoing topic because of its importance in ensuring the optimal route for businesses. Being able to act as a buffer of liquidity (Baños-Caballero et al 2020), working capital plays a valuable role during economic turmoil (Enqvist et al 2014). In a recent report about all globally listed companies (PWC Annual Report 2019), PWC Global highlights that improving working capital may release €1.3 trillion of cash, which may boost capital investment by 55%.…”

Section: Introductionmentioning

confidence: 99%

“…However, empirical evidence on the relationship between working capital and corporate performance is rather mixed. On the one hand, investments in working capital are supposed to have a positive influence on firm profitability because they support growth in terms of sales and earnings (Baños-Caballero et al 2020;Aktas et al 2015). Sales are positively influenced by trade credit, improving customer relationships, while holding more inventories secures the business from the perspective of price fluctuations.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

Anton

Nucu

2020

JRFM

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The purpose of this study is to investigate the relationship between working capital and firm profitability for a sample of 719 Polish listed firms over the period of 2007–2016. The scarcity of empirical evidence for emerging economies and the importance of working capital efficiency motivate the research on the working capital–financial performance relationship. The paper adopts a quantitative approach using different panel data techniques (ordinary least squares, fixed effects, and panel-corrected standard errors models). The empirical results report an inverted U-shape relationship between working capital level and firm profitability, meaning that working capital has a positive effect on the profitability of Polish firms to a break-even point (optimum level). After the break-even point, working capital starts to negatively affect firm profitability. The study brings theoretical and practical contributions. It extends and complements the literature on the field by highlighting new evidence on the non-linear interrelation between working capital management (WCM) and corporate performance in Poland. From the practitioners’ perspective, the results highlight the importance of WCM for firm profitability.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

Anton

Nucu

2020

JRFM

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“…Besides, achieving wealth maximization for shareholders. Most of the previous studies confirmed the fact that WCM selected policy has an impact on its financial performance (Altaf and Ahmad, 2019;Baños-Caballero et al, 2019).…”

Section: Working Capital Strategies and Policiesmentioning

confidence: 64%

Working capital and financial performance in MENA region

El-Ansary

Al-Gazzar

2020

JHASS

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Purpose This paper aims to investigate the possible non-linear effect of net working capital (NWC) level on profitability for Middle East and North Africa (MENA) region listed companies. Furthermore, the study tests the possible interactive effect of cash levels on the relationship between NWC and profitability. Design/methodology/approach NWC level is the independent variable and profitability is the dependent variable using two proxies, return on assets (ROA) and returns on equity (ROE). Control variables are size, leverage, gross domestic product growth and sales revenue growth. The generalized method of moments was used to analyze the data of 134 consumer-goods listed firms in 12 MENA countries for the period 2013–2019. Findings The results demonstrate that NWC levels had a non-linear effect on profitability using ROA as a profitability proxy while results were insignificant using ROE as a profitability proxy. Furthermore, results show the absence of interactive effects between NWC, cash levels and both profitability proxies. Originality/value The study fills a gap in the working capital management (WCM) literature by providing new evidence on WCM’s non-linear effect of corporate performance in the MENA region emerging markets using the consumer-goods industry sample. The study contributes to the financial managers’ working capital optimization efforts in the MENA region by providing evidence on the usefulness of WC optimization efforts in the region from a financial performance point of view. According to the researchers’ knowledge, a few studies attempted to investigate this non-linear relationship for neither MENA region countries nor the consumer-goods industry.

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“…Deloof (2003), Garc ıa-Teruel and Mart ınez-Solano (2007), Ebben andJohnson (2011), Baños-Caballero et al (2012), Kieschnick et al (2013), and Afrifa and Padachi (2016) find a negative relationship between investment in working capital and company performance, as larger investments increase the probability of bankruptcy (Baños-Caballero et al, 2014;Humphrey, 2017;Le, 2019;Maheshwari, 2014). and Panigrahi (2017) recognise that investment in working capital increases a company's negotiating power with its providers, allowing it to obtain greater discounts, reduce supply costs, provide a hedge against input price fluctuations, and minimise loss of sales due to potential stock-outs, thus increasing the organisation's value (Aktas et al, 2015;Baños-Caballero et al, 2020;Deloof, 2003;Garc ıa-Teruel & Mart ınez-Solano, 2007). Therefore, maintaining an adequate investment in working capital allows for better company performance (Ukaegbu, 2014).…”

Section: Review Of the Literaturementioning

confidence: 99%

“…Thus, the challenge for companies in terms of managing working capital is to develop a culture that allows them to increase profitability (Anton & Afloarei Nucu, 2020). There is evidence of a positive and significant relationship between working capital and financial performance because working capital supports increases in sales (Aktas et al, 2015;Baños-Caballero et al, 2020;Mun & Jang, 2015). An increase in sales permits better management of commercial credit and inventories and helps firms avoid immobilisation of resources and price fluctuations (Mahmood et al, 2019).…”

Section: Introductionmentioning

confidence: 99%

Working capital management and business performance: evidence from Latin American companies

Mardones

2021

Economic Research-Ekonomska Istraživanja

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Working capital management is one of the most important decisions that affect an organisation's financial performance. Despite the importance of this topic, the empirical evidence for emerging economies is scarce; therefore, this research attempts to estimate and compare how investment in working capital impacts the financial performance of companies listed on the stock exchanges in Chile, Mexico, Peru, and Brazil for the years 2000 to 2018. This study uses panel data methodology, and the results show the existence of a positive and significant but non-linear relationship between investments in working capital and firm performance. However, there are mixed results for different countries and industries that could be explained by macroeconomic variables that favour access to financing for such investments. Furthermore, the results show that investments in working capital perform better for larger companies than smaller companies.

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Net operating working capital and firm value: A cross-country analysis

Cited by 26 publications

References 57 publications

The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

Working capital and financial performance in MENA region

Working capital management and business performance: evidence from Latin American companies

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