The Impact of Working Capital Components on Firm Value in US Firms

Abstract

Working capital is an important part of any businesses day-to-day operations. However, most businesses do not take into consideration that continuous investment into working capital does not maximize firm value. The specific problem addressed was firm managers that do not understand the optimal level for each component of working capital create sub-optimal value firm; leading to diminished investment returns for shareholders. For this study, 140 firms for the years 2003-2012 were selected from a stratified random sample of firms listed on the Russell 2000 index. Accounts receivable days outstanding, accounts payable days outstanding, and inventory days outstanding were regressed on economic value to determine whether a curvilinear relationship existed. All three models showed a statistically significant relationship to firm value, F(6, 2268), p<.01, R2= .40, F(6, 2268), p<.01, R2= .38, F(6, 2268), p<.01, R2= .39. Recommendations for firm managers included lowering accounts receivable, accounts payable, and inventory days during boom economic times while increasing accounts receivable, accounts payable, and inventory days during recessionary economic times. Consideration for future research into working-capital management and firm value should consider whether different curvilinear relationships exist between firm value and working-capital components during different economic cycles.

Working Capital, Financial Constraints, and Firm Value: Evidence of Indonesia Manufacturing Firm

“…Furthermore, the proceeds of sales or invoices on receivables to customers are reused to purchase raw materials. This working capital turnover demonstrates the efficiency of a company that will ultimately boost corporate profits and provides a positive signal to investors that the company can manage its short-term finance effectively (Cumbie & John, 2017). Positive working capital means a surplus of current assets.…”

The impact of financing policy on the cost of debt

“…Nevertheless, assessing the influence of policy on the enterprise's activity, current studies use only the components of the working capital's management and financing. Thus, the days payable outstanding are used as an indicator for analysis of financing policy of American firms (Cumbie & Donnellan, 2017). The degree of conservatism (aggressiveness) of financing policy for firms listed in the Tehran and Colombo Stock Exchange, companies from Malaysia, Germany, Austria, and Switzerland is determined by the duration of the cash conversion cycle (Musazadeh et al, 2014;Mohamad & Saad, 2010;Arachchi et al, 2017;Hofmann & Martin, 2016).…”

Mediasi Profitabilitas dalam Menilai Hubungan antara Manajemen Modal Kerja dan Nilai Perusahaan

“…Modal kerja merupakan salah satu bentuk investasi yang tergolong dalam keputusan keuangan jangka pendek dimana perusahaan menggunakannya untuk membiayai kegiatan operasional sehari-hari dalam satu tahun (Cumbie & Donnellan, 2017). Dijelaskan lebih lanjut oleh Cumbie & Donnellan (2017) definisi modal kerja selalu melibatkan penggunaan aset lancar dan hutang lancar karena manajemen modal kerja melibatkan dua hal dasar yaitu menentukan jumlah modal kerja yang sesuai dan bagaimana modal kerja dibiayai. Komponen modal kerja terdiri dari kas yang dibutuhkan dalam operasi, piutang, persediaan, hutang yang dibayarkan kepada pemasok atau hutang usaha dan hutang akrual (Afrifa & Padachi, 2016).…”

“…Manajemen modal kerja dan profitabilitas mempunyai pengaruh yang positif terhadap nilai perusahaan (Almeida & Junior, 2014;Cumbie & Donnellan, 2017;Lin et al, 2016;Moeljadi, 2017;Rasyid et al, 2018;Sabrin, Sarita, Dedy & Sujono, 2016;Shah & Arif, 2018;Sudiyatno, Puspitasari, & Sudarsi, 2017;Wasiuzzaman, 2015). Berdasarkan hubungan tersebut, maka pe-nelitian ini mengembangkan suatu model untuk memberikan solusi atas research gap tersebut dengan menempatkan profitabilitas sebagai variabel mediasi pengaruh manajemen modal kerja terhadap nilai perusahaan.…”

“…Hasil dari penelitian ini sesuai dengan penelitian yang telah dilakukan oleh (Kawakibi et al, 2019) (Gracia, 2018) Moeljadi (2017), Cumbie & Donnellan (2017), dan Sudiyatno et al, 2017 bahwa ada pengaruh yang signifikan antara days of sales inventory terhadap profitabilitas perusahaan. Namun, pada penelitian terdahulu pengaruh periode konversi persediaan bersifat negatif, sedangkan hasil dari penelitian ini menunjukkan arah hubungan yang positif atau berbanding lurus.…”