1 - Juliano Ribeiro de Almeida Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo - FEA - Administração
2 - Eduardo Kazuo Kayo Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo - FEA - Departamento de Administração
Reumo
Our results suggest that the relation between excess working capital and stock return is non-linear: the relation is negative for firms with positive excess working capital and positive for firms with negative excess working capital (that is, there is an inverted U-shaped relationship between net working capital (NWC) investment and firm value, suggesting the existence of an optimal level of company working capital).
The objective is to appraise the effect of net working capital (NWC) on firm performance and investment.
Baños-Caballero et al. (2012), Baños-Caballero et al. (2014), Aktas et al. (2015) and Ben-Nasr (2016) found an inverted U-shaped relationship between firm value and working capital investment.
We use a similar methodology approach from that developed by Aktas et al. (2015) to test the hypotheses in this study, in which the dependent variable measures the company performance or investment.
Firms with higher NWC level showed a poor stock performance when compared to those with lower NWC level and, by increasing (for firms with low NWC level) or decreasing (firms with high NWC level) their investment in working capital, companies may improve their stock performance in the subsequent year, creating shareholder value.
Our results suggest that the relation between excess working capital and stock return is non-linear: the relation is negative for firms with positive excess working capital and positive for firms with negative excess working capital (that is, there is an inverted U-shaped relationship between NWC investment and firm value, suggesting the existence of an optimal level of company working capital).
Aktas. N, Croci, E. & Petmezas, D. (2015). Is working capital management value-enhancing? Evidence from firm performance and investments. Journal of Corporate Finance, 30, 98-113.
Baños-Caballero, S.; García-Teruel, P. J.; & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67, 332-338.
Ben-Nasr, H. (2016). State and foreign ownership and the value of working capital management. Journal of Corporate Finance, 41, 217-240.