Working Capital Management and Shareholder Wealth

31 Pages Posted: 10 Apr 2011 Last revised: 25 Nov 2012

See all articles by Robert L. Kieschnick

Robert L. Kieschnick

University of Texas at Dallas

Mark Laplante

affiliation not provided to SSRN

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

Date Written: April 27, 2012

Abstract

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.

Keywords: working capital, financing, shareholder wealth

JEL Classification: G31, G34

Suggested Citation

Kieschnick, Robert L. and Laplante, Mark and Moussawi, Rabih, Working Capital Management and Shareholder Wealth (April 27, 2012). Available at SSRN: https://ssrn.com/abstract=1431165 or http://dx.doi.org/10.2139/ssrn.1431165

Robert L. Kieschnick (Contact Author)

University of Texas at Dallas ( email )

800 W. Campbell Rd, SM31
Richardson, TX 75080
United States
972-883-6273 (Phone)

HOME PAGE: http://www.utdallas.edu/~rkiesch/

Mark Laplante

affiliation not provided to SSRN ( email )

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania - The Wharton School ( email )

United States

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