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The Impact of Working Capital Components on Firm Value in US Firms

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  • Joseph Brian Cumbie
  • John Donnellan

Abstract

Working capital is an important part of any businesses day-to-day operations. However, most businesses do not take into consideration that continuous investment into working capital does not maximize firm value. The specific problem addressed was firm managers that do not understand the optimal level for each component of working capital create sub-optimal value firm; leading to diminished investment returns for shareholders. For this study, 140 firms for the years 2003-2012 were selected from a stratified random sample of firms listed on the Russell 2000 index. Accounts receivable days outstanding, accounts payable days outstanding, and inventory days outstanding were regressed on economic value to determine whether a curvilinear relationship existed. All three models showed a statistically significant relationship to firm value, F(6, 2268), p

Suggested Citation

  • Joseph Brian Cumbie & John Donnellan, 2017. "The Impact of Working Capital Components on Firm Value in US Firms," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 138-150, August.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:8:p:138-150
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    2. Oz, Ibrahim Onur & Yelkenci, Tezer & Meral, Gorkem, 2021. "The role of earnings components and machine learning on the revelation of deteriorating firm performance," International Review of Financial Analysis, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    accounts receivable; accounts payable; inventory; working-capital management; firm value;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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