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Do Working Capital Strategies Matter? Evidence from Small Business Data in Japan
Author(s) -
Tsuruta Daisuke
Publication year - 2018
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12239
Subject(s) - working capital , business , capital (architecture) , monetary economics , demographic economics , economics , finance , archaeology , history
Previous studies show that a high level of working capital is harmful to firm performance. Using data from over 100,000 small businesses in Japan, we show that a high level of working capital has a positive effect on default risk and sales growth. Therefore, this activity has both positive and negative effects. Additionally, the relationship between working capital and firm performance is negative over a 1‐year period, but positive over longer periods, implying that a high level of working capital is ultimately not harmful for small businesses.