Chapter

Patterns in Working Capital

Lorenzo A. Preve and Virginia Sarria-Allende

in Working Capital Management

Published in print March 2010 | ISBN: 9780199737413
Published online May 2010 | e-ISBN: 9780199775637 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199737413.003.0012

Series: FMA SURVEY

Patterns in Working Capital

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This chapter analyzes the cross‐sectional and time‐series variation in the patterns of working capital. By understanding how working capital policies compare across firms, industries, or countries, and by analyzing how these policies evolve over time, we can better appreciate the role of a firm's working capital strategy. We suggest that sound institutional frameworks allow for less restrictive working capital management policies, since financial needs for operation are usually lower and easier to be financed with short‐term funds (relative to less developed contexts'). We comment on how these equilibriums are affected by peculiar macroeconomic conditions or financial crises. Finally, we also consider the effects of firm‐level financial distress on working capital.

Keywords: corporate finance; working capital management; financial needs for operation; corporate strategy; financial distress; working capital

Chapter.  3055 words. 

Subjects: Financial Markets

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