Working Capital Management and Firm Listing Status

Article OPEN
Seraina Anagnostopoulou (2012)
  • Subject: working capital; cash conversion cycle; private firms; listing status
    • jel: jel:G30 | jel:G32 | jel:G31 | jel:M40

This study comparatively examines the determinants of working capital management for listed vs. unlisted firms, and assesses the impact of this policy on profitability by focusing on the cash conversion cycle, a commonly used measure of working capital management. By using a large UK public and private firm sample, it is found that private firms have significantly lower cash conversion cycles than their public counterparts, and that traditional determinants of the cycle significantly differ between the two groups. The findings are robust to matching public and private firms according to a number of fundamental characteristics, allowing only for their listing status to differ. Results further indicate that the cash conversion cycle has a relatively stronger (negative) impact on operating profitability for private, compared to public firms. This is consistent with greater importance of efficient working capital management for firms with more restricted access to external financing.
  • References (27)
    27 references, page 1 of 3

    Andrade, G., and Kaplan, S. 1998. How costly is financial (not economic) distress? Evidence from highly leveraged transactions that became distressed. Journal of Finance 53: 1443-1492.

    Asker, J.; Farre-Mensa, J.; and Ljungqvist, A. 2011. What do private firms look like? Data Appendix. Working paper. Social Science Research Network.

    Baños-Cabbalero, S.; García-Teruel, P.; and Martínez-Solano, P. 2010. Working capital management in SMEs. Accounting and Finance 50: 511-527.

    Brav, O. 2009, Access to capital, capital structure, and the funding of the firm, Journal of Finance 64: 263-308.

    Burgstahler, D.; Hail, L.; and Leuz, C. 2006. The importance of reporting incentives: earnings management in European private and public firms. The Accounting Review 81: 983-1016.

    Cohen, D., and Zarowin, P. 2010. Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics 50: 2-19.

    Cuñat, V. 2007. Trade credit: suppliers as debt collectors and insurance providers. Review of Financial Studies 20: 491-527.

    Deloof, M. 2003. Does working capital management affect profitability of Belgian firms? Journal of Business Finance and Accounting 30, 573-587.

    Demirgüç-Kunt, A., and Maksimovic, V. 2002. Funding growth in bank-based and market-based financial systems: evidence from firm-level data. Journal of Financial Economic, 65: 337-363.

    Fazzari, S. M., and Petersen, M. 1993. Working capital and fixed investment: new evidence on financing constraints. Rand Journal of Economics 24: 328-342.

  • Metrics
    No metrics available
Share - Bookmark