Policy Uncertainty and Operating Working Capital Behavior

Open Access
Author:
Mccormick, Kyle Charles
Area of Honors:
Interdisciplinary in Accounting and Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • John Jason Lunn, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
  • Orie Edwin Barron, Honors Advisor
Keywords:
  • Finance
  • Accounting
  • Working Capital
  • Net Operating Working Capital
  • Policy Uncertainty
  • Economic Policy Uncertainty
Abstract:
This paper empirically investigates the relationship between policy uncertainty, as measured by the Economic Policy Uncertainty Index, and net operating working capital, defined as the sum of accounts receivable and inventory net of accounts payable, at the firm-level. Through a series of regressions incorporating 100,556 firm years between January 1st, 1990 and December 31st, 2014, it finds strong statistical evidence that policy uncertainty and net operating working capital share a strong inverse relationship. This inverse relationship is particularly evident among firms operating in industries with low industry-level asset tangibility, high industry-level heterogeneity, and high industry-level Lerner Index.