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The speed of adjustment in working capital requirement

The speed of adjustment in working capital requirement This paper analyzes the determinants of working capital requirement (WCR) and examines the speed with which firms adjust toward their target WCR. The findings indicate that firms adjust relatively quickly, which supports the hypothesis that current balance sheet items are easier to manipulate and could be changed quite easily, even in the short run. Moreover, we find that the speed of adjustment is not equal across all firms and varies according to their external finance constraints and their bargaining power. Firms with better access to external capital markets and greater bargaining power adjust faster due to their lower costs of adjustment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The European Journal of Finance Taylor & Francis

The speed of adjustment in working capital requirement

The speed of adjustment in working capital requirement

The European Journal of Finance , Volume 19 (10): 15 – Nov 1, 2013

Abstract

This paper analyzes the determinants of working capital requirement (WCR) and examines the speed with which firms adjust toward their target WCR. The findings indicate that firms adjust relatively quickly, which supports the hypothesis that current balance sheet items are easier to manipulate and could be changed quite easily, even in the short run. Moreover, we find that the speed of adjustment is not equal across all firms and varies according to their external finance constraints and their bargaining power. Firms with better access to external capital markets and greater bargaining power adjust faster due to their lower costs of adjustment.

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References (55)

Publisher
Taylor & Francis
Copyright
© 2013 Taylor & Francis
ISSN
1466-4364
eISSN
1351-847X
DOI
10.1080/1351847X.2012.691889
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the determinants of working capital requirement (WCR) and examines the speed with which firms adjust toward their target WCR. The findings indicate that firms adjust relatively quickly, which supports the hypothesis that current balance sheet items are easier to manipulate and could be changed quite easily, even in the short run. Moreover, we find that the speed of adjustment is not equal across all firms and varies according to their external finance constraints and their bargaining power. Firms with better access to external capital markets and greater bargaining power adjust faster due to their lower costs of adjustment.

Journal

The European Journal of FinanceTaylor & Francis

Published: Nov 1, 2013

Keywords: working capital management; working capital requirement; net trade cycle; speed of adjustment; heterogeneity; G30; G31; G32

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