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Working capital dynamics

Author

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  • Gaurav Singh Chauhan

    (Department of Finance and Accounting, Indian Institute of Management Indore, Indore, India)

Abstract

We assess short-run variations in firms’ working capital allocations in light of finding persistence in these allocations in the recent literature. Specifically, we study the extent and speed of mean reversion in firms’ working capital allocations to evaluate if firms tend to follow firm-specific value-maximizing optimal allocations. Furthermore, we assess whether and to what extent firms trade off their working capital to accommodate capital expenditure shocks. While we find frequent inter-temporal offsetting movements in working capital allocations in the short run, we do not find evidence of a systematic trade-off between working capital and fixed asset investments. JEL Classification: G30, G31, G32

Suggested Citation

  • Gaurav Singh Chauhan, 2021. "Working capital dynamics," Australian Journal of Management, Australian School of Business, vol. 46(1), pages 51-75, February.
    • Handle: RePEc:sae:ausman:v:46:y:2021:i:1:p:51-75
    DOI: 10.1177/0312896220911440
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    More about this item

    Keywords

    Asset allocation; investment trade-off; mean reversion; short-run variations; working capital;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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