Net Operating Working Capital Behavior: A First Look |
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| Authors: | Matthew D Hill G Wayne Kelly Michael J Highfield |
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| Institution: | 1. Matthew D. Hill, CTP, is an Assistant Professor of Finance at the University of Mississippi in Oxford, Mississippi, USA.;2. G. Wayne Kelly is an Associate Professor of Finance at Mississippi State University in Starkville, Mississippi, USA.;3. Michael J. Highfield, CFA, is an Assistant Professor of Finance and Interim Robert W. Warren Chair of Real Estate at Mississippi State University in Starkville, Mississippi, USA. |
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| Abstract: | 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. |
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