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Godfred Adjapong Afrifa - One of the best experts on this subject based on the ideXlab platform.
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Working Capital level influence on sme profitability
Journal of Small Business and Enterprise Development, 2016Co-Authors: Godfred Adjapong Afrifa, Kesseven PadachiAbstract:This paper aims to report the results of an investigation of the relationship between Working Capital level, measured by the cash conversion cycle and profitability of Small and Medium Enterprises (SMEs). The paper employs panel data regression analysis on a sample of 160 Alternative Investment Market (AIM) listed SMEs for the period from 2005 to 2010. The empirical results show that there is a concave relationship between Working Capital level and firm profitability and that there is an optimal Working Capital level at which firms’ profitability is maximised. Furthermore, an examination as to whether or not deviations from the optimal Working Capital level reduce firm profitability indicate that deviations above or below the optimum decrease profitability. The sample is limited to AIM listed SMEs, and therefore the findings cannot be generalised to all firms. Overall, the evidence suggests that firms should strive and attain the optimal Working Capital level in order to maximise their profitability. The results are of importance to both SMEs and policy makers providing insight into the nature of cash conversion cycle and its relationship to SMEs profitability.
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net Working Capital cash flow and performance of uk smes
Review of Accounting and Finance, 2016Co-Authors: Godfred Adjapong AfrifaAbstract:Purpose - – This paper aims to examine the influence of cash flow on the relationship between net Working Capital and firm performance. Design/methodology/approach - – The paper uses unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the UK for the period from 2004 to 2013. Findings - – The results indicate a strong concave relationship between net Working Capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in Working Capital, but firms with cash flow above the sample median have higher investment in Working Capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in Working Capital, so as to improve performance. Practical implications - – Overall, the results suggest that whilst firms with limited cash flow should strive to reduce investment in Working Capital, firms with available cash flow should increase investment in Working Capital to improve performance. Originality/value - – This current study incorporates the relevance of cash flow in assessing the association between Working Capital management and firm performance.
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net Working Capital cash flow and performance of uk smes
Review of Accounting and Finance, 2016Co-Authors: Godfred Adjapong AfrifaAbstract:Purpose – This paper aims to examine the influence of cash flow on the relationship between net Working Capital and firm performance. Design/methodology/approach – The paper uses unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the UK for the period from 2004 to 2013. Findings – The results indicate a strong concave relationship between net Working Capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in Working Capital, but firms with cash flow above the sample median have higher investment in Working Capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in Working Capital, so as to improve performance. Practical implications – Overall, the results suggest that whilst firms with limite...
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net Working Capital cash flow and performance of uk smes
Social Science Research Network, 2015Co-Authors: Godfred Adjapong AfrifaAbstract:This paper examines the influence of cash flow on the relationship between net Working Capital and firm performance. The paper employs unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the United Kingdom for the period from 2004 to 2013. The results indicate a strong concave relationship between net Working Capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in Working Capital but firms with cash flow above the sample median have higher investment in Working Capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in Working Capital, so as to improve performance. Overall, the results suggest that whilst firms with limited cash flow should strive to reduce investment in Working Capital, firms with available cash flow should increase investment in Working Capital in order to improve performance. This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.
Ron Shalev - One of the best experts on this subject based on the ideXlab platform.
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factors associated with the year end decline in Working Capital
Management Science, 2017Co-Authors: Richard M Frankel, Hagit Levy, Ron ShalevAbstract:Working Capital is an important indicator of firm operational efficiency. All else being equal, lower levels signal greater efficiency. Managers are thus likely to be motivated to report lower levels of Working Capital at times of greater external attention. We find that Working Capital levels decrease in the fourth fiscal quarter significantly more than expected, conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. Evidence indicates that firms manage down year-end Working Capital through transactions that increase year-end operating cash flow and that firms spread this activity over all Working Capital accounts. Finally, the temporary decrease in year-end Working Capital is correlated with compensation benchmarks and analysts’ annual cash flow forecasts. The temporary drop is also more pronounced for firms with industry dominance. This paper was accepted by Mary Barth, accounting.
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factors associated with the year end decline in Working Capital
Social Science Research Network, 2015Co-Authors: Richard M Frankel, Hagit Levy, Ron ShalevAbstract:Working Capital is an important indicator of firm operational efficiency. All else equal, lower levels signal greater efficiency. As such, managers are likely to be motivated to report lower levels of Working Capital at times of greater external attention to its levels. This study provides evidence that Working Capital levels decrease in the fourth fiscal quarter significantly more than expected conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. We find that firms manage down year-end Working Capital through transactions that increase year-end operating cash flow and that firms spread this activity over all Working Capital major accounts. Finally, the temporary decrease in year-end Working Capital is correlated with compensation benchmarks and annual analysts’ cash-flow forecasts. The temporary drop is also more pronounced for firms with industry dominance.
Pedro Martinezsolano - One of the best experts on this subject based on the ideXlab platform.
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financing of Working Capital requirement financial flexibility and sme performance
Journal of Business Economics and Management, 2016Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper investigates the relation between the financing strategies of Working Capital requirement and firm performance for the period 1997 to 2012. Using the two-step generalized method of moments estimator, we find that a suitable financing strategy can help firms improve their performance. Moreover, the results indicate that the Working Capital requirement financing-performance relation changes during a financial crisis. Finally, we also find that this relation depends on a firm’s financial flexibility. The findings are of interest for managers and researchers and show that managers should not only be concerned about investing in Working Capital requirement but also consider how this investment is to be financed. To the best of our knowledge, this is the first paper to analyse how the financing strategy selected by firms to finance their Working Capital requirement affects their performance.
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Working Capital management corporate performance and financial constraints
Journal of Business Research, 2014Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper examines the linkage between Working Capital management and corporate performance for a sample of non-financial UK companies. In contrast to previous studies, the findings provide strong support for an inverted U-shaped relation between investment in Working Capital and firm performance, which implies the existence of an optimal level of investment in Working Capital that balances costs and benefits and maximizes a firm's value. The results suggest that managers should avoid negative effects on firm performance because of lost sales and lost discounts for early payments or additional financing expenses. The paper also analyzes whether the optimal Working Capital level is sensitive to alternative measures of financial constraints. The findings show that this optimum is lower for firms more likely to be financially constrained.
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how does Working Capital management affect the profitability of spanish smes
Small Business Economics, 2012Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper analyzes the relation between Working Capital management and profitability for small and medium-sized enterprises (SMEs) by controlling for unobservable heterogeneity and possible endogeneity. Unlike previous studies, we examine a non-linear relation between these two variables. Our results show that there is a non-monotonic (concave) relationship between Working Capital level and firm profitability, which indicates that SMEs have an optimal Working Capital level that maximizes their profitability. In addition, a robustness check of our results confirms that firms’ profitability decreases as they move away from their optimal level.
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Working Capital management in smes
Accounting and Finance, 2010Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper analyses the determinants of Cash Conversion Cycle (CCC) for small- and medium-sized firms. It has been found that these firms have a target CCC length to which they attempt to converge, and that they try to adjust to their target quickly. The results also show that it is longer for older firms and companies with greater cash flows. In contrast, firms with more growth opportunities, and firms with higher leverage, investment in fixed assets and return on assets have a more aggressive Working Capital policy.
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effects of Working Capital management on sme profitability
International Journal of Managerial Finance, 2007Co-Authors: Pedro J Garciateruel, Pedro MartinezsolanoAbstract:Purpose – The object of the research presented in this paper is to provide empirical evidence on the effects of Working Capital management on the profitability of a sample of small and medium‐sized Spanish firms.Design/methodology/approach – The authors have collected a panel of 8,872 small to medium‐sized enterprises (SMEs) covering the period 1996‐2002. The authors tested the effects of Working Capital management on SME profitability using the panel data methodology.Findings – The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also improves the firm's profitability.Originality/value – This work contributes to the literature in two ways. First, no previous such evidence exists for the case of SMEs. Second, unlike previous studies, in the current work robust test have been conducted for the possible presence of e...
Richard M Frankel - One of the best experts on this subject based on the ideXlab platform.
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factors associated with the year end decline in Working Capital
Management Science, 2017Co-Authors: Richard M Frankel, Hagit Levy, Ron ShalevAbstract:Working Capital is an important indicator of firm operational efficiency. All else being equal, lower levels signal greater efficiency. Managers are thus likely to be motivated to report lower levels of Working Capital at times of greater external attention. We find that Working Capital levels decrease in the fourth fiscal quarter significantly more than expected, conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. Evidence indicates that firms manage down year-end Working Capital through transactions that increase year-end operating cash flow and that firms spread this activity over all Working Capital accounts. Finally, the temporary decrease in year-end Working Capital is correlated with compensation benchmarks and analysts’ annual cash flow forecasts. The temporary drop is also more pronounced for firms with industry dominance. This paper was accepted by Mary Barth, accounting.
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factors associated with the year end decline in Working Capital
Social Science Research Network, 2015Co-Authors: Richard M Frankel, Hagit Levy, Ron ShalevAbstract:Working Capital is an important indicator of firm operational efficiency. All else equal, lower levels signal greater efficiency. As such, managers are likely to be motivated to report lower levels of Working Capital at times of greater external attention to its levels. This study provides evidence that Working Capital levels decrease in the fourth fiscal quarter significantly more than expected conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. We find that firms manage down year-end Working Capital through transactions that increase year-end operating cash flow and that firms spread this activity over all Working Capital major accounts. Finally, the temporary decrease in year-end Working Capital is correlated with compensation benchmarks and annual analysts’ cash-flow forecasts. The temporary drop is also more pronounced for firms with industry dominance.
Sonia Banoscaballero - One of the best experts on this subject based on the ideXlab platform.
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financing of Working Capital requirement financial flexibility and sme performance
Journal of Business Economics and Management, 2016Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper investigates the relation between the financing strategies of Working Capital requirement and firm performance for the period 1997 to 2012. Using the two-step generalized method of moments estimator, we find that a suitable financing strategy can help firms improve their performance. Moreover, the results indicate that the Working Capital requirement financing-performance relation changes during a financial crisis. Finally, we also find that this relation depends on a firm’s financial flexibility. The findings are of interest for managers and researchers and show that managers should not only be concerned about investing in Working Capital requirement but also consider how this investment is to be financed. To the best of our knowledge, this is the first paper to analyse how the financing strategy selected by firms to finance their Working Capital requirement affects their performance.
-
Working Capital management corporate performance and financial constraints
Journal of Business Research, 2014Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper examines the linkage between Working Capital management and corporate performance for a sample of non-financial UK companies. In contrast to previous studies, the findings provide strong support for an inverted U-shaped relation between investment in Working Capital and firm performance, which implies the existence of an optimal level of investment in Working Capital that balances costs and benefits and maximizes a firm's value. The results suggest that managers should avoid negative effects on firm performance because of lost sales and lost discounts for early payments or additional financing expenses. The paper also analyzes whether the optimal Working Capital level is sensitive to alternative measures of financial constraints. The findings show that this optimum is lower for firms more likely to be financially constrained.
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how does Working Capital management affect the profitability of spanish smes
Small Business Economics, 2012Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper analyzes the relation between Working Capital management and profitability for small and medium-sized enterprises (SMEs) by controlling for unobservable heterogeneity and possible endogeneity. Unlike previous studies, we examine a non-linear relation between these two variables. Our results show that there is a non-monotonic (concave) relationship between Working Capital level and firm profitability, which indicates that SMEs have an optimal Working Capital level that maximizes their profitability. In addition, a robustness check of our results confirms that firms’ profitability decreases as they move away from their optimal level.
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Working Capital management corporate performance and financial constraints
Documentos de Trabajo FUNCAS, 2011Co-Authors: Sonia Banoscaballero, Pedro Juan Garcia Teruel, Pedro Martinez SolanoAbstract:This paper examines linkage between Working Capital management and corporate performance for a sample of non-financial UK companies. Since a higher investment in Working Capital can increase firms� sales, a positive relation between Working Capital and firm value would be expected. However, as Working Capital increases, a firm�s value is also likely to decrease, due to the low return of current assets and the additional financing expenses borne by the firm. Consequently, a negative relation between Working Capital and firm value might be expected at high levels of Working Capital. Our findings provide strong support for an inverted U-shaped relation between investment in Working Capital and firm performance. Additionally, we also analyze whether the optimal Working Capital level is sensitive to financial constraints. Our findings show that this optimum is lower for firms more likely to be financially constrained.
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Working Capital management in smes
Accounting and Finance, 2010Co-Authors: Sonia Banoscaballero, Pedro J Garciateruel, Pedro MartinezsolanoAbstract:This paper analyses the determinants of Cash Conversion Cycle (CCC) for small- and medium-sized firms. It has been found that these firms have a target CCC length to which they attempt to converge, and that they try to adjust to their target quickly. The results also show that it is longer for older firms and companies with greater cash flows. In contrast, firms with more growth opportunities, and firms with higher leverage, investment in fixed assets and return on assets have a more aggressive Working Capital policy.
