Working Capital Management: An Exploratory Study

Abstract

Working capital management is an issue in which finance research is scarce. One possible reason behind this fact might relate to the relative ease with which efficient financial markets correct deviations from optimal working capital policies. However, in less efficient financial markets, pervasive among emerging economies, working capital management is critical for both firms’ performance and survival. The difference in the market’s ability for providing immediate assistance to firms might explain the differential consequences on firms’ profitability and financial distress. This article explains the fundamentals of working capital management, the importance of its interaction with financial markets, and how this interaction might explain working capital patterns around the world.