Working Capital Management and Value Creation: Evidence from an Emerging Economy

Abstract

This study examines how the efficiency of working capital management (WCM) influences shareholder value in Vietnam, an emerging economy where internal capital allocation is critical. A panel of 150 non-financial firms listed on the Hanoi Stock Exchange from 2015 to 2024 is used, with firms classified annually as financially healthy, distressed, or bankrupt using the Altman Z-score. Unlike prior research that treats financial health as a control, it is used as a central focus. WCM efficiency is measured by residual-based metrics, Efficiency of Net Working Capital (ENWC) and Efficiency of Cash Conversion Cycle (ECCC), which account for firm-specific operational factors. Results  how that WCM efficiency positively affects shareholder value only in financially healthy firms; no significant relationship is found in distressed or bankrupt firms. This suggests that the benefits of working capital optimization depend on a firm’s capacity to implement these strategies effectively. The study contributes by combining firm-level health segmentation with refined efficiency measures and highlights the enabling role of technology, such as ERP systems and AI tools, in maximizing WCM effectiveness when financial conditions are stable.