Working Capital Management during the Global Financial Crisis: Evidence from Japan

Author Name TSURUTA Daisuke (Nihon University)
Creation Date/NO. March 2017 17-E-045
Research Project Study on Corporate Finance and Firm Dynamics
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This paper demonstrates the adjustment speed of firm working capital and the relationships between working capital and firm performance in Japan during the recent global financial crisis. During this period, working capital possibly was excessive and therefore harmful to firm performance given the sudden decrease in sales. Using quarterly firm-level data, we find that the adjustment of working capital was weaker during the crisis. Moreover, the negative relationship between excess working capital and firm performance became more significant during the crisis, especially for larger firms. However, we find no evidence for similar observations after late 2009, suggesting that this crisis-related, working capital-firm performance effect does not last long. To finance excessive working capital, firms borrow funds from banks and reduce their internal cash during periods of both crisis and non-crisis.