How Working Capital Management Effect Firm Value In Manufacturing Companies?

Working capital, which occupies an important place in financial management decisions, is requisite capital for firm’s current assets investments and for daily business activities. As an optimal balance between profitability, likidity and risk factors is needed to maximize firm value, working capital management is considered to have a significant impact on firm value. Therefore in this study, the relation between working capital management and firm value is analyzed for the companies traded on Borsa İstanbul. Also, based on the size of firms, the effect of working capital investments on firm value is studied. For a sample of 121 firms, panel data analysis is used for the period 2006 - 2014. Projections are made with Fixed Effects Model (FEM) in panel data analysis.In the study we follow the model developed by Fama and French (1998) and used by Pinkowitz et al. (2006) and Wasiuzzaman (2015). The findings indicate that, there is a significant and positive relation between firm value and components of working capital. Accordingly, as level of working capital effectiveness and liquidity increase, the firm value also increases. As a result of increase in net working capital effectiveness, cash flows also increase and this paves way for a positive relation between firm value and the level of liquidity. When looked at the results according to firm size, it can be seen that in small size firms the increase in net working capital results infirm value increase. The relation working capital effectiveness and firm value is more powerful in small firms. On the other hand, for big size firms, increase in the level of net working capital effectiveness and liquidity do not have any effect on firm value. Having alternative finance capabilities and less-dependency on components of working capital compared to small-size firms, weaken the relation between working capital and firm value in big-size firms. Capital structure, profitability and dividend policies also have an effect on firm value. But this effect is more powerful in small size firms compared to big-size firms.