To what extent does working capital management impact a company’s stock price?

‘The management of working capital is an essential part of the business’s short-term planning and control process’ (Atrill and McLaney 2017, p.461). It is defined by the composition of current assets and current liabilities oras ‘a net investment in short-term assets’ (Atrill and McLaney 2017, p. 461). Due to Qazi et al.(2011) the managementof working capital is an important aspect of a firm’s financial management.In line with this, Enqvist et al.(2014, p. 37)state that ‘Efficient workingcapital management is recognized as an importantaspect of financial management practices in all organizational form’.Anoptimal level working capital can be attained by ‘...a balance between the risk and efficiency’(Filbeck and Krueger 2005, p.11).Since the financialcrisis in 2008 hit the economyon a global level, the importance of working capital and its management became increasingly important for companies from all industries across the globe. Thus, managers should put the factors affecting working capital more into consideration to guarantee flexibility of their business (Haron and Nomran 2016, p. 462). This makes working capital and its management an im-portant aspect for companies being to participate in today’s highly competitive marketsor even to create a competitive advantage.For companies which are listed on a stock exchange, the stock exchangeoffers them another opportunity for long-term financing of their business but also an easy way for investors to buy or sell shares (Atrill and McLaney, 2017). Thus, shares and their prices also must be considered very carefully.The previous research donein the field of working capital is mostly focusing on the relationship with profitability in any way (Afrifra and Padachi, 2016; Deloof, 2003; Mad-hou et al., 2015; Shin and Soenen, 1998). According to Chiang et al.(1997) stock prices and their changes are influencedby the expectations of the market towards the discounted value of future earnings. This is backed by several studies examining the relationship between stock prices and profitability (Sorongan, 2016; Fama and French, 1988) The research done inthe field of profitability and its relation to working capital management supportsthe questionif working capital management also affectsa com-pany’s stock price