Working Capital Management of Small Firms

The purpose of this paper to investigate the efficiency of working capital management and its impact on small firm's liquidity, profitability and operating cash flows. Small firms have a considerable amount of fund tied up with current assets and faced with difficulties to access external fund from the capital markets, their current liabilities are an important source of their external financing. The relationship between the study variables examined using dynamic panel data analysis for a panel of 87030 U.S. non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market, and Over the Counter Market. The analysis is applied at the level of the full sample and divisions of the sample by size. I also examined industry effect within small firms. The results suggest that managers of small firms can increase corporate liquidity, profitability, and operating cash flow of their firms by shortening the cash conversion cycle