Efficiency of Working Capital Management and Corporate Profitability

Hyun-Han Shin; Soenen, Luc
September 1998
Financial Practice & Education;Fall/Winter98, Vol. 8 Issue 2, p37
Academic Journal
Efficient working capital management is an integral part of the overall corporate strategy to create shareholder value. We investigate the relation between the firm's net-trade cycle and its profitability. This relationship is examined using correlation and regression analysis, by industry and working capital intensity. Using a Compustat sample of 58,985 firm years covering the period 1975-1994, we find, in all cases, a strong negative relation between the length of the firm's net-trade cycle and its profitability. In addition, shorter net-trade cycles are associated with higher risk-adjusted stock returns.


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