The purpose of this paper is to examine the relationship between net working capital and firm value for a sample of 2,483 firms across 16 Asian countries. In addition, this study also examines the impact of degree of financial development and law enforceability on net working capital-firm value relationship.
The study is based on secondary financial data of 2,483 Asian firms obtained from Bloomberg database, pertaining to a period of five years. This study employs the fixed effects approach to arrive at results.
Results of the study confirm a strong negative relationship between net working capital and firm value. In addition, the author also found that the negative relationship between net working capital and firm value to be strong for countries that have a high degree of financial development and law enforceability.
Unlike prior studies, this study examines the relationship between net working capital and firm value. In addition, this study also tests the impact of degree of financial development and law enforceability on this relationship. To the best knowledge, no such study has been conducted in the Asian context.
