arbiter
JournalsAccount

Can Trade‐Off Theory Explain Net Working Capital Management Decisions?

Haowen Luo

Journal of Corporate Accounting and Finance2025https://doi.org/10.1002/jcaf.22802article
ABDC B
Weight
0.37

Abstract

This study applies a partial‐adjustment model to test how well trade‐off theory explains net working capital management decisions and examines working capital management dynamics. The results indicate that firms have long‐run NWC targets and tend to gradually converge to the target from the firm's initial net working capital level within each period. We estimate that typical firms close approximately 50% of the gap between their actual and target net working capital each year. Such high adjustment speed implies that a typical firm closes half of a deviation from the target in about 13 months. Our results show that the trade‐off theory can explain the management decisions regarding working capital holdings.

1 citation

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1002/jcaf.22802

Or copy a formatted citation

@article{haowen2025,
  title        = {{Can Trade‐Off Theory Explain Net Working Capital Management Decisions?}},
  author       = {Haowen Luo},
  journal      = {Journal of Corporate Accounting and Finance},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1002/jcaf.22802},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Can Trade‐Off Theory Explain Net Working Capital Management Decisions?

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.