Net Operating Working Capital Behavior: A First Look

Financial Management, Vol. 39, No. 2, 2010

44 Pages Posted: 22 Jun 2009 Last revised: 10 Jun 2011

See all articles by Matthew D. Hill

Matthew D. Hill

Arkansas State University

G. W. Kelly

University of Southern Mississippi; Mississippi State University - Department of Finance and Economics

Michael J. Highfield

Mississippi State University - Department of Finance and Economics

Date Written: June 17, 2009

Abstract

Net operating working capital captures multiple dimensions of firms’ adjustments to operating and financial conditions. Sales growth, uncertainty of sales, costly external financing, and financial distress encourage firms to pursue more aggressive working capital strategies. Firms with greater internal financing capacity and superior capital market access employ more conservative working capital policies. Results are robust to unobserved heterogeneity and industry effects. The evidence suggests that operating and financing conditions should be considered when evaluating working capital behavior, not just industry averages. Additionally, industry concentration magnifies the effect of sales growth.

Keywords: working capital, short-term financial management

JEL Classification: G29, M41

Suggested Citation

Hill, Matthew D. and Kelly, Gary Wayne and Highfield, Michael J., Net Operating Working Capital Behavior: A First Look (June 17, 2009). Financial Management, Vol. 39, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=1421306

Matthew D. Hill (Contact Author)

Arkansas State University ( email )

2713 Pawnee
P.O. Box 1750
Jonesboro, AR 72467-115
United States

Gary Wayne Kelly

University of Southern Mississippi ( email )

118 College Drive
#5076
Hattiesburg, MS 39406
United States
601 266 4959 (Phone)
601 266 6110 (Fax)

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

Michael J. Highfield

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

HOME PAGE: http://misweb.cbi.msstate.edu/mhighfield

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