ABSTRACT. A successful management of working capital management can be materially beneficial to firm value, but the related research works are so far relatively less known. This paper investigates the potential determinants of working capital management and analyses the possible existence of an optimal level of working capital in emerging markets. Using a variety of models to regress on the balanced panel data that covers the decade of 2005–2014 across five East Asian developing countries, we consistently find that working capital management policies, measured by net liquid balance (NLB) and working capital requirements (WCR), are significantly influenced by firm leverage and operating cash flow level. Considerable changes in the impact of specific external or internal determinants (e.g., business cycle leading indicator, firm leverage, firm financial performance and firm capital expenditure) on working capital management have been observed across industries and over time, but not across countries. Moreover, our evidence supports the existence of an optimal level of working capital in the whole sample of five countries and particularly in the sub-sample of Chinese firms, and such an optimum can help to maximize the value of the firm. Our results seem robust to the presence of endogeneity.
JEL codes: G15; G30; G32

Keywords: working capital management; optimal level of working capital; emerging markets; net liquid balance; working capital requirements; liquidity risk

How to cite: Bin, Leo, Jianguo Chen, and Duong Son Tran (2019). “Exploring the Determinants of Working Capital Management: Evidence across East Asian Emerging Markets,” Economics, Management, and Financial Markets 14(2): 11–45. doi:10.22381/EMFM14220191

Received 12 December 2018 • Received in revised form 10 March 2019
Accepted 12 March 2019 • Available online 15 April 2019

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Department of Business Administration,
University of Illinois Springfield, USA
(corresponding author)
School of Economics and Finance,
Massey University, New Zealand
School of Economics and Finance,
Massey University, New Zealand

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