The relation between working capital management and stock return: Evidence from Swedish listed companies

Sammanfattning: We provide the first empirical study of the relationship between working capital management and shareholder wealth in Sweden. In a sample of listed companies ranging from 2006 through 2014, we find that there is no easy and generalizable answer to what the relationship of working capital management and stock performance is. Yet, we provide indication that the relationship between the two variables depends on the level of working capital. On average, stock performance and working capital are negatively correlated for firms with high levels of working capital and to a weaker extent positively related for companies with low levels of working capital. However, we do not find strong evidence for the existence of an optimal level of net working capital. Furthermore, this paper is the first study to provide evidence for the importance of interest rates when assessing the relationship between working capital and stock performance. We find some indication that during periods of high interest rates, the relation between working capital and shareholder wealth is more negative than in low interest rate episodes.