We appreciate the helpful comments from the editor (Bill Christie), two anonymous referees, Dan Bradley, Ken Cyree, Corie Hulen-Hill, Julia Ingram, Bonnie Van Ness, Robert Van Ness, Jim Washam, and John Zietlow as well as session participants at the 2007 Southern Finance Association Annual Meeting and the 2008 Financial Management Association Annual Meeting. Financial support and research assistance for this project was provided by the College of Business and Industry and the Warren Chair of Real Estate at Mississippi State University. A previous version of this paper was titled “Determinants of Operating Working Capital Policy: A First Look.” All errors remain the sole property of the authors.
Net Operating Working Capital Behavior: A First Look
Article first published online: 22 JUN 2010
© 2010 Financial Management Association International
Volume 39, Issue 2, pages 783–805, Summer 2010
How to Cite
Hill, M. D., Kelly, G. W. and Highfield, M. J. (2010), Net Operating Working Capital Behavior: A First Look. Financial Management, 39: 783–805. doi: 10.1111/j.1755-053X.2010.01092.x
- Issue published online: 22 JUN 2010
- Article first published online: 22 JUN 2010
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.