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Do Firms Manage Working Capital for Survival or for Success: An Empirical Evidence from Literature Review?
This paper reviews the extant literature on working capital management (WCM) for empirical evidence to establish whether or not firms manage working capital for survival or for success. And if they do, at what point is WC managed for firm’s survival or for the success of the firm? And also, more importantly do firms really manage working capital to enhance shareholders value creation? The study revealed that while there are models to describe how working capital management practices influence firm value, there is practically no evidence that firms manage working capital so as to maximize shareholders’ value. This is because most of the studies use profitability as a product of accounting metrics to measure firm’s value. This measure suits financial performance more than shareholders value because of its limitation. Again, there is no indication as to what point in working capital management (WCM) is the firm managing for survival or for success. It is therefore recommended that future research attention in WCM should focus on operationalizing the concept of survival and success of a firm in the context of WCM, and providing indicator measure for managing working capital for survival and success to enable financial managers ensure operational efficiency in working capital management.
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