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Working capital and firm value in an emerging market

Shaista Wasiuzzaman (Faculty of Management, Multimedia University, Cyberjaya, Malaysia)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 2 February 2015




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.


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.


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.


To the author’s knowledge, this is the first study on the value of working capital in Malaysia or in any emerging market. Most studies on working capital valuation concentrate on developed countries and that too are only a handful. Hence this study contributes to the scarce literature on the valuation of working capital. This study also uses the model by Fama and French (1998) to evaluate the relationship between working capital and firm value, which has hardly been used in studies on working capital valuation.



The author wishes to thank the anonymous referee(s) of this journal who provided constructive feedback which helped improve this paper significantly. The author also wishes to thank her PhD supervisor, Associate Professor Dr V.C. Arumugam, for his support and encouragement.


Wasiuzzaman, S. (2015), "Working capital and firm value in an emerging market", International Journal of Managerial Finance, Vol. 11 No. 1, pp. 60-79.



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