Investment in Working Capital and Shareholder Wealth - A Study on the Swedish Market

Abstract: We examine the relationship between investments in working capital and shareholder wealth on Swedish firms. By measuring excess return on a sample consisting of 143 listed Swedish firms between 2009 – 2018, several conclusions could be made. First, for the average firm it is a disadvantage of hoarding cash when the objective is to maximize shareholder wealth. Second, for the average firm with net operating working capital higher than the median firm in the industry, firms maximize shareholder wealth through a decrease in net operating working capital. Third, the value from investments in net operating working capital is significantly positively influenced by future sales expectations and short-term debt ratio, and significantly negatively influenced by leverage. Altogether our evidence provides vital information for executives regarding working capital management.