Firm, industry and economic determinants of working capital at risk

Tarek Ibrahim Eldomiaty, Mohamed Hashem Rashwan, Mohamed Bahaa El Din, Waleed Tayel
  • International Journal of Financial Engineering, December 2016, World Scientific Pub Co Pte Lt
  • DOI: 10.1142/s2424786316500316

Firm, industry and economic determinants of working capital at risk

What is it about?

The objective of this study is to examine the relative contribution of firm-level, industry level and country level variables to working capital at risk. Working capital at risk is treated as the value at risk for a portfolio of firm's current assets. As far as short-term liquidity is concerned, working capital at risk, being the maximum amount that a firm may lose at a certain confidence interval, must be the most important part that a firm's management must focus on.

Why is it important?

This study offers a new approach that deals with working capital as a portfolio, rather than single ratios, that firm's management must decrease its volatility (value at risk), therefore, short-term liquidity can be improved significantly. This approach can be considered a financial engineering in terms of monitoring and managing short-term liquidity exposure.


Professor Tarek Ibrahim Eldomiaty
Misr International University

The general findings of the study show that cash conversion cycle and the leverage are the most significant determinants of working capital at risk. Both determinants have significant influence on the level of volatility of working capital throughout the three categories of working capital at risk.

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The following have contributed to this page: Professor Tarek Ibrahim Eldomiaty