Investigation of the multi-layers of imprinting on corporate working capital management

• Published in: International journal of managerial finance 2023-10, Vol.19 (5), p.1124-1146
• Main Authors: Davaadorj, Zagdbazar, Bolortuya Enkhtaivan, Weathers, Jamie
• Format: Article
• Language: English
• Subjects: Behavior; Capital structure; Consumer goods; COVID-19; Decision making; Economic crisis; Efficiency; Equity financing; Executive compensation; Financial management; Inventory; Inventory management; Pandemics; Working capital
• ISSN: 1743-9132; 1758-6569
• DOI: 10.1108/IJMF-09-2022-0426

PurposeThe paper aims to investigate the imprinting effect on working capital (WC) management as higher-level managers' transition to chief executive officer (CEO) positions. This paper proposes that WC management defined as a shorter cash conversion cycle (CCC) can be carried forward to the new firm when the managers are appointed as a CEO.Design/methodology/approachThe authors employ a multivariate regression approach. The data in this study come from two sources: Execucomp which provides data for corporate managers of the largest 2,000 USA firms including S&P 1,500 US and Compustat which provides financial information of firms.FindingsThe authors find a positive imprinting effect of “new” CEOs on WC outcomes – proxied by the CCC. CCC shortens by approximately 16 days when CEOs are efficient managers at previous institutions, predominantly derived from improvements in inventory and payables. The effect is sensitive to individuals' age, familiarity with the industry and high-pressure circumstances.Practical implicationsThe paper includes important implications of WC management for firms to consider, especially during economic crises when liquidity management is a priority.Originality/valueThis paper extends the literature on the imprinting effect on managerial decision-making. The paper offers evidence of cooperative yet dynamic efforts in managing WC during CEO turnover events, which are unique findings.