Working Capital Management and Shareholder Wealth
Robert L. Kieschnick
University of Texas at Dallas
affiliation not provided to SSRN
University of Pennsylvania - The Wharton School
April 27, 2012
We provide the first empirical study of the relationship between corporate working capital management and shareholder wealth. Examining U.S. corporations from 1990 through 2006, we find evidence that: the incremental dollar invested in net operating working capital is worth less than the incremental dollar held in cash for the average firm; the valuation of the incremental dollar invested in net operating working capital is significantly influenced by a firm’s future sales expectations, its debt load, its financial constraints, and its bankruptcy risk; and the value of the incremental dollar extended in credit to one’s customers has a greater effect on shareholder wealth than the incremental dollar invested in inventories for the average firm.
Number of Pages in PDF File: 31
Keywords: working capital, financing, shareholder wealth
JEL Classification: G31, G34working papers series
Date posted: April 10, 2011 ; Last revised: November 25, 2012
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