Net Operating Working Capital Behavior: A First Look

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...

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Bibliographic Details
Published in:Financial management 2010-06, Vol.39 (2), p.783-805
Main Authors: Hill, Matthew D., Kelly, G. Wayne, Highfield, Michael J.
Format: Article
Language:English
Subjects:
Accounts receivable
Analysis
Capital markets
Capital measurement
Cash
Corporations
Cost analysis
Finance
Financial analysis
Financial management
Financial services industries
Financing methods
Industrial concentration
Industrial market
Management
Market share
Net working capital
Sales
Sales growth
Studies
Trade credit
Uncertainty
Working capital
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Summary: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.
ISSN:0046-3892
1755-053X
DOI:10.1111/j.1755-053X.2010.01092.x