Working capital and firm value in an emerging market

Purpose–The purpose of this paper is to examine the relationship between working capital efficiency and firm value and the influence of financing constraints on this relationship. Design/methodology/approach–Data from 192 firms spanning a period of ten years (1999-2008) are used for this purpose and analyzed using the ordinary least squares regression technique. Findings–The study finds that improvements in working capital efficiency through reduction in working capital investment results in higher firm value. However, this relationship is influenced by the financing constraints faced by a firm. For financially constrained firms, working capital efficiency significantly increases firm value but it is found to be insignificant for unconstrained firms