Working Capital Investment and Firm Value Relationship: A Non-Linear Perspective

Farai Kwenda


This study explores the relationship between working capital investment and the value of the firm using data collected from 92 companies listed on the Johannesburg Stock Exchange in eight economic sectors for the period 2006 – 2015. Using the system generalized method of moments estimation technique on the panel data for these firms in order to control for unobservable heterogeneity and potential endogeneity problems, the evidence obtained from the study provides strong support to a non-linear working capital investment-firm value relationship. Deviations from the optimal level decrease the value of the firm. Therefore managers must understand and pursue the target working capital investment level which maximises firm value.

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This work is licensed under a Creative Commons Attribution 4.0 International License.