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Efficient working capital management, financial constraints and firm value: A text-based analysis

Version 2 2024-06-03, 14:57
Version 1 2019-11-15, 12:09
journal contribution
posted on 2024-06-03, 14:57 authored by S Dhole, Sagarika MishraSagarika Mishra, AM Pal
In this paper we examine the association between efficient working capital management and financial constraints for a sample of Australian firms. Using a text-based measure of financial constraints, we show that efficient working capital management is associated with lower financial constraints in firms in the next two to three years. Ours is the first study to use a text-based measure of financial constraints for Australian firms. We also show that the negative association between financial constraints and future share price is significantly weakened for firms with efficient working capital management, suggesting that such firms have higher market valuations despite being financially constrained. Finally, analysts seem take into account working capital management of firms when setting the one year ahead target price.

History

Journal

Pacific Basin Finance Journal

Volume

58

Article number

ARTN 101212

Pagination

1 - 19

Location

Amsterdam, The Netherlands

ISSN

0927-538X

eISSN

1879-0585

Language

English

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2019, Elsevier B.V.

Publisher

ELSEVIER