Does working capital Mmanagement affects firm value? evidence from an emerging economy

Abstract

This study explores the relationship between net working capital decisions and the value of firms traded in Borsa Istanbul. A panel data set of 317 non-financial Turkish firms for the 2010-2018 sample period is analyzed using a dynamic modeling approach. System GMM estimator is employed. A positive relationship is found between the efficiency of working capital management and the firm value of sample firms. Firms with shorter cash conversion cycles are found to be more valuable. However, this relationship weakens for firms with a high level of liquidity in terms of cash holdings. The evidence from this study suggests that even though inefficient management of non-cash operating assets has a negative effect on firm value; cash holdings moderate this relationship.