Abstract:
Corporate finance literature and finance practitioners have the notion that the efficient
working capital management (WCM) affects firm value. This study investigates the value
effect of working capital management, using a sample of 44 listed companies on the
Colombo Stock Exchange (CSE) over the period 2011-2015. The CSE is currently
recognized as a high growth frontier market (FM) in the world. The efficiency of WCM is
measured using the Cash Conversion Cycle (CCC) and its components while firm value is
measured by the Tobin Q ratio. The firm size, leverage and sales growth are used as the
control variables. Using panel data regression methodology (the pooled OLS and fixed
effects regressions), the study finds that CCC is inversely related to Tobin Q, suggesting that
managers can create value for their shareholders by efficiently managing investment in
working capital of their firms.
