Abstracts Category : Other

Working capital management, performance and financial constraints: the case of German firms

by Marta Filipa Silva

The aim of this study is to analyse the impact of the working capital management onthe profitability of German firms, considering also the effects of financial constraints. Forthis purpose, we used a sample of German listed firms, from different industries, betweenthe period of 1999 and 2014. The data was collected from the Datastream database and itwas analysed under the panel data methodology. Moreover, the return-on-assets and thenet trade cycle are used to measure the profitability and the efficiency of the workingcapital management, respectively. To provide an accurate analysis we also applied theInstrumental Variables methodology, in order to avoid biased results due to the existenceof endogeneity.The results of this investigation provide evidence of a concave relationship betweenprofitability and net trade cycle, which is in accordance with recent studies. Thesefindings indicate that firms have an optimal level of investment in the working capitalwhere they should stand as close as possible in order to maximize profitability.Furthermore, we also found a non-linear relationship between all the working capitalaccounts and firms profitability.Additionally, when the effects of financial constraints are taken into account, thereis evidence of a lower optimal level in firms more likely to be financially constrained.These results suggest that the concave relationship between working capital and firmsperformance always hold. Moreover, they confirm the impact of the availability ofinternal funds and the access to capital markets on firms working capital investmentdecisions.Advisors/Committee Members: Silva, Florinda (advisor).