Abstract
A firm can undertake corporate investments arising from growth opportunities only if it has the required level of liquidity. A clear understanding of the complex relationship between corporate investments and liquidity could help firms to gain benefits from growth opportunities. While the study supports several previous studies on the sensitivity of investments to liquidity, it more importantly contributes to the literature on working capital by showing the dual-role of working capital in relation to corporate investments. Drawing upon Shulman and Cox’s (1985) Net Liquidity Balance (NLB) and Working Capital Requirement (WCR) as proxy for net working capital, the study develops a model to test the two hypotheses.
Using the data collected from listed service firms in the Thailand Stock Exchange, the study found that while NLB has a significant positive relationship with corporate investments, WCR has a significant negative relationship with corporate investments. The study also finds that firms manage WCR efficiently during growth opportunities in order to enhance NLB.
| Original language | English |
|---|---|
| Pages (from-to) | 53-62 |
| Number of pages | 10 |
| Journal | Journal of applied management accounting research |
| Volume | 7 |
| Issue number | 1 |
| Publication status | Published - 2009 |
| Externally published | Yes |
Keywords
- capital expenditure
- working capital
- net liquidity balance
- working capital requirement