Drawing from agency and behavioral theories, we evaluate whether and how family firm governance influences working capital management policy and its contribution to shareholder value. Our results ...indicate that family firms pursue a conservative working capital management policy to capitalize on the competitive benefits of balance sheet liquidity. Moreover, we find that the market value of working capital investment is higher for family firms. Product market competition, financing constraints and capital market access, however, moderate the relationship between family governance and the market value of net working capital investment. Taken together, our results suggest that, relative to non-family firms, family firms pursue value-enhancing working capital management policies.
•Family firms pursue a conservative working capital management policy.•Market value of working capital investment (WCI) is higher for family firms.•Moderators affect the relationship between family governance and the market value of working capital investment.•Product market competition moderates the relationship between family governance and the market value of WCI.•Financing constraints and capital market access also moderates this relationship.
Purpose: This study examined the impact of working capital management on the financial performance of alternative energy in the UK from 2015 to 2022. The proxy used includes receivable turnover, ...payable turnover, inventory turnover and return on asset. The study employs an ex-post facto research design using panel data from the sampled firms' annual reports. Methodology: The panel data were analysed using descriptive statistics, correlation matrix and panel regression analysis. The Hausman specification test showed that the fixed effect was more appropriate. Findings and Conclusion: The findings show that receivable turnover has a significant positive impact on the return on assets of the alternative firm in the UK. In addition, payable turnover has a significant negative effect on return on assets, while the findings on inventory turnover have an insignificant impact on return on assets. These findings imply that working capital management significantly affects the financial performance of alternative energy firms in the UK. Based on the conclusion, the study recommends that oil and gas firms increase their net cash flow from operating activities to increase their financial performance. Originality/Value: Globally, it is acknowledged that many companies fail due to poor working capital management. This study contributes to knowledge by examining the effect of working capital management on the financial performance of alternative energy firms in line with sustainable development goals in achieving a sustainable UK economy. This has not been previously studied.
We investigate the extent of short-term flexibility in firms' working capital management decisions. Contrary to the firms' perceived ability to frequently modulate their working capital allocations, ...we find systematic and persistence differences in working capital allocations across and within industries. Specifically, industries and firms within industries with relatively higher or lower working capital allocations remain so for a sustained period of time, often exceeding 15 years. Contrary to the past literature suggesting that such allocations are driven by firms' concerns over improving inter-temporal cash flows and sales or absorbing shocks to their capital expenditure schedules, we find that firm-specific time-invariant factors rather primarily drive them.
•We investigate if working capital decisions are truly short-term in nature.•Results are in contrast to past studies and common perceptions.•Working capital allocations persist for long, often exceeding 15 years.•Tactical value creation by working capital is not supported by our findings.•Firms' working capital decisions are primarily driven by time-invariant factors.
This article studies the relationship between working capital management and firm operating performance and focuses on the moderating effect of size. We use a large sample of 56,221 small, medium, ...and large firms from France, Germany, and Italy, and our results indicate that the impact of working capital management on performance strongly depends on size. We identify a higher sensitivity of performance to underinvestment in net operating working capital for small firms, but no higher sensitivity to overinvestment. These findings suggest that small firms experience high opportunity costs from lost sales when their net operating working capital is low. Financial constraints and lack of financial management are discussed as potential explanations because both are expressions of the liability of smallness.
We study contract design and coordination of a supply chain with one supplier and one retailer, both of which are capital constrained and in need of short-term financing for their operations. ...Competitively priced bank loans are available, and the failure of loan repayment leads to bankruptcy, where default costs may include variable (proportional to the firm’s sales) and fixed costs. Without default costs, it is known that simple contracts (e.g., revenue-sharing, buyback, and quantity discount) can coordinate and allocate profits arbitrarily in the chain. With only variable default costs, buyback contracts remain coordinating and equivalent to revenue-sharing contracts but are Pareto dominated by revenue-sharing contracts when fixed default costs are present. Thus, for general bankruptcy costs, contracts without buyback terms are of most interest. Quantity discount contracts fail to coordinate the supply chain, since a necessary condition for coordination is to proportionally reallocate debt obligations within the channel. With only variable default costs and with high fixed default costs exhibiting substantial economies-of-scale, revenue-sharing contracts with working capital coordination continue to coordinate the chain. Unexpectedly, for fixed default costs with small economies-of-scale effects, the two-firm system under a revenue-sharing contract with working capital coordination might have higher expected profit than the one-firm system. Our results provide support for the use of revenue-sharing contracts with working capital coordination for decentralized management of supply chains when there are bankruptcy risks and default costs.
This paper was accepted by Serguei Netessine, operations management.
The aim of this study is to provide empirical evidence concerning the effects of working capital on firm performance in the hospitality and tourism industry. We identify an inverted U-shaped ...relationship between working capital and firm performance. More specifically, the U-shaped relationship exists for accommodation, food and travel firms. In contrast, a positive linear relationship is valid for sport firms while changes in working capital have no effect on performance for gambling firms. To the best of our knowledge, this study is the first empirical research study to extend cross-country analysis in respect of sub-hospitality and tourism industries to a worldwide context. The findings suggest that hospitality and tourism managers should consider the diversity of relationships between working capital and firm performance in sub-hospitality and tourism industries when deciding on an appropriate strategy for working capital management.
•We investigated the impact of working capital on performance of the hospitality and tourism firms.•An inverted U-shaped impact of working capital is observed.•We found that U-shaped impact is different for sub-industries.•There is optimal level of working capital for accommodation, food and travel firms.
This research delves into the intricate relationship between working capital management components and various profitability metrics within the Indian corporate sector. Drawing data from 600 ...companies, the study employs a multifaceted analytical approach, encompassing descriptive analysis, Pearson correlation and multiple regression analyses. Findings underscore the paramount significance of efficient working capital management practices. Particularly, components like days receivable and average inventory emerge as pivotal determinants of profitability metrics, such as return on equity and return on assets. Furthermore, the study identifies distinctive patterns unique to the Indian business landscape, emphasizing the need for bespoke financial strategies tailored to local market dynamics. The research not only augments the existing body of financial literature, but also offers actionable insights for practitioners aiming to optimize profitability through strategic liquidity management. As global business terrains continue to evolve, this study serves as a beacon, guiding fiscal strategies within emerging markets.
Efficient working capital management is becoming important for restaurant firms coping with weak financial conditions and increased economic uncertainty. This study investigates the impact of ...restaurant firms’ working capital on their profitability. We further examine the effects of firms’ cash levels on the relationship between working capital and profitability. The findings ascertain a strong inverted U-shape relationship between working capital and a firm's profitability, which indicates the existence of an optimal working capital level for restaurant firms. This study also reveals that a firm's cash level is an important factor for efficient working capital management. The results suggest that interactive effects exist among working capital, cash levels, and profitability. Thus, restaurant managers should consider these different roles and impacts when developing an efficient working capital management strategy. Detailed results and implications are presented in the main body of this paper.
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