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ABSTRACT
This paper analyses whether there are differences in the speed of adjustment in net operating working capital (NWC) across countries. Unlike prior research, which reported that the adjustment speed of any current item is always rapid, we find that the speed of adjustment to NWC targets depends on a country’s investor protection and financial development. Specifically, using a sample of firms from 30 countries, we show that NWC adjustment speeds vary across countries, and they are faster for companies that operate in countries with stronger investor protection and greater financial development.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. See Section 4 or Panel A of the Appendix for a detailed description of the firm-specific variables.
2. The model is specified in Section 5.
3. Although the values of this index are not available for the last years of our sample, Djankov et al. (Citation2007) indicate that this index presents a high degree of persistence. In this line, Cho et al. (Citation2014) show that most countries did not undergo any change in their creditor rights index values for the period 1991–2004.
4. The Appendix provides a summary of all country-specific variables and data sources.
5. We find the same result when we carry out a more in-depth analysis by dividing the civil tradition into the three families normally identified within this tradition (French, German and Scandinavian): the speed of adjustment is faster in common-law countries than in any of these families with civil-law tradition.
6. We also find that the speed of adjustment is faster in OECD member countries and with a higher Index of Economic Freedom.