Disappearing Working Capital

dc.contributor.author Na, Hyun Jong
dc.date.accessioned 2018-11-27T19:11:48Z
dc.date.available 2018-11-27T19:11:48Z
dc.date.issued 2018-08-29
dc.description.abstract The latter half of the 20th century is characterized with an unprecedented technological development in the human history. This paper examines whether the development in information technology (IT) has had a real consequence on the working capital management of U.S. listed firms over the past five decades. I find that the annual mean (median) value of cash conversion cycle (CCC) of U.S. firms has sharply declined from 105.3 (96.9) days in the 1970s to 64.2 (53.2) days in the 2010s due to a real improvement in inventory and payment cycle. The decline is systematic across all industry and cohort groups and is not affected by accounting-based earnings management. Moreover, I find that one percent increase in IT spending is associated with a reduction of CCC by 0.17 days. I further point out that this real (vis-à-vis accounting) improvement in IT and working capital management re-shapes the asset structure of average U.S. firms, reduces their net working capital balance from 30.5% of average total assets in the year 1970 to only 4.6% in the year 2017, reduces working capital accruals from 18.8% of earnings in the 1970s to only 5.4% in the 2010s, and changes the relationship between earnings and cash flows over time.
dc.identifier.uri http://hdl.handle.net/10125/59299
dc.subject information technology
dc.subject cash conversion cycle
dc.subject working capital
dc.subject asset structure
dc.subject cash holding
dc.subject accruals
dc.title Disappearing Working Capital
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