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Investment in Working Capital and Shareholder Wealth - A Study on the Swedish Market

Sande, Erik LU and Lövgren, David LU (2020) NEKH02 20192
Department of Economics
Abstract
We examine the relationship between investments in working capital and shareholder wealth on Swedish firms. By measuring excess return on a sample consisting of 143 listed Swedish firms between 2009 – 2018, several conclusions could be made. First, for the average firm it is a disadvantage of hoarding cash when the objective is to maximize shareholder wealth. Second, for the average firm with net operating working capital higher than the median firm in the industry, firms maximize shareholder wealth through a decrease in net operating working capital. Third, the value from investments in net operating working capital is significantly positively influenced by future sales expectations and short-term debt ratio, and significantly negatively... (More)
We examine the relationship between investments in working capital and shareholder wealth on Swedish firms. By measuring excess return on a sample consisting of 143 listed Swedish firms between 2009 – 2018, several conclusions could be made. First, for the average firm it is a disadvantage of hoarding cash when the objective is to maximize shareholder wealth. Second, for the average firm with net operating working capital higher than the median firm in the industry, firms maximize shareholder wealth through a decrease in net operating working capital. Third, the value from investments in net operating working capital is significantly positively influenced by future sales expectations and short-term debt ratio, and significantly negatively influenced by leverage. Altogether our evidence provides vital information for executives regarding working capital management. (Less)
Please use this url to cite or link to this publication:
author
Sande, Erik LU and Lövgren, David LU
supervisor
organization
course
NEKH02 20192
year
type
M2 - Bachelor Degree
subject
keywords
Working Capital Management, Investment, Shareholder Wealth
language
English
id
9001998
date added to LUP
2020-02-25 10:58:26
date last changed
2020-02-25 10:58:26
@misc{9001998,
  abstract     = {{We examine the relationship between investments in working capital and shareholder wealth on Swedish firms. By measuring excess return on a sample consisting of 143 listed Swedish firms between 2009 – 2018, several conclusions could be made. First, for the average firm it is a disadvantage of hoarding cash when the objective is to maximize shareholder wealth. Second, for the average firm with net operating working capital higher than the median firm in the industry, firms maximize shareholder wealth through a decrease in net operating working capital. Third, the value from investments in net operating working capital is significantly positively influenced by future sales expectations and short-term debt ratio, and significantly negatively influenced by leverage. Altogether our evidence provides vital information for executives regarding working capital management.}},
  author       = {{Sande, Erik and Lövgren, David}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Investment in Working Capital and Shareholder Wealth - A Study on the Swedish Market}},
  year         = {{2020}},
}