Working-Capital and Capital Structure

56 Pages Posted: 13 Nov 2019

See all articles by Mark J. Flannery

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Özde Öztekin

Florida International University (FIU)

Date Written: November 1, 2019


Survey evidence suggests that a firm's operating features affect its financial leverage (Graham and Harvey, 2001). We document the effect on leverage of a company's working capital – its inventory, receivables, and payables. Higher inventories and receivables tend to reduce a firm's asset risk, which is conducive to higher leverage, better credit ratings, more long-term debt and fewer equity issuances. Higher payables provide a fixed, senior claim on firm earnings and substitute for interest-bearing debt. Increases in payables reduce leverage, credit ratings, and short-term debt issuances, but increase equity issuances. Our findings imply strong influences of working-capital on corporate capital structures.

Keywords: Working Capital, Inventories, Receivables, Payables, Capital Structure, Leverage

JEL Classification: G18, G21, G28

Suggested Citation

Flannery, Mark Jeffrey and Öztekin, Özde, Working-Capital and Capital Structure (November 1, 2019). Available at SSRN: or

Mark Jeffrey Flannery

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Özde Öztekin (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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