The development of working capital management and its impact on profitability and shareholder value: evidence from Germany

Abstract

This study investigates empirically the development of working capital management and its impact on
profitability and shareholder value in Germany. We analyse panel data of 115 firms listed on the German
Prime Standard, covering the period from 2011 to 2017. The results provide evidence that efficient working
capital management, indicated by a shorter cash conversion cycle, deteriorated over time, but that a shorter
cash conversion has a positive impact on profitability and shareholder value. The findings highlight the need
that managers should give greater priority to working capital optimization, even in a low-interest environment.
The paper contributes to the literature by advancing this research area in Germany, and it is the first study
investigating shareholder relationship with working capital management and all its determinants.