Working capital management efficiency and shareholder value creation: A comparative study of financially healthy, distressed, and bankrupt firms

Kamranzadeh Ezmareh, Abdolrahim; Badavar Nahandi, Younes; Zeinali, Mehdi

doi:10.22059/ijms.2026.393815.677579

Working capital management efficiency and shareholder value creation: A comparative study of financially healthy, distressed, and bankrupt firms

Articles in Press

Document Type : Research Paper

Authors

Abdolrahim Kamranzadeh Ezmareh ¹

Younes Badavar Nahandi ²

Mehdi Zeinali ¹

¹ Department of Accounting, Ta.C., Islamic Azad University, Tabriz, Iran.

² Department of Accounting, Ta.C., Islamic Azad University, Tabriz, Iran

10.22059/ijms.2026.393815.677579

Abstract

This study investigates the effect of working capital management efficiency on shareholder value creation, with particular emphasis on firms’ financial health conditions (healthy, financially distressed, and bankrupt firms) listed on the Tehran Stock Exchange. Unlike prior studies relying on conventional working capital ratios, this research employs two efficiency-based measures—Efficiency of Net Working Capital (ENWC) and Efficiency of the Cash Conversion Cycle (ECCC)—derived from models combining Data Envelopment Analysis (DEA) and machine-learning optimization techniques. Using a sample of 136 firms over the period 2013–2023, efficiency scores were estimated through a Genetic Algorithm (GA)-based approach, and the hypotheses were tested using panel data techniques. The findings indicate that efficient working capital management positively affects shareholder value creation. However, this effect is significant only for financially healthy firms and not for financially distressed and bankrupt firms. Moreover, the value-enhancing effect of working capital efficiency is significantly stronger in healthy firms. The results suggest that financial health acts as a boundary condition in the relationship between working capital management efficiency and shareholder value creation. Overall, the study contributes to the literature by introducing efficiency-based measures of working capital management and demonstrating that the value implications of working capital efficiency depend on firms’ financial health.

Keywords

Working Capital Management Efficiency

Net Working Capital

Cash Conversion Cycle

Shareholder Value Creation

Financial Health Status

Subjects