Efficiency at the Core: How Working Capital Management Relates to Accounting Metrics and Market Performance in the Automotive Industry

In today’s volatile automotive landscape, working capital management (WCM) functions not just as a back-office efficiency tool, but a strategic lever for financial and shareholder value. This study explores the relationship between WCM components and firm performance both from accounting and market valuation perspectives. It uses a panel dataset of the top ten publicly listed global automotive firms across multiple geographies over a ten-year period. Firm performance is assessed using accounting indicators of Return on Assets (ROA) and Return on Equity (ROE), and market valuation through Tobin’s Q (TOBQ). The analysis focuses on four WCM components: cash conversion cycle (CCC), average receivables days (ARD), average payables days (APD), and inventory days (ITD), employing multiple linear regression (MLR) for empirical testing. The results reveal that ARD and APD are the most influential components. ARD negatively affects both ROA and ROE, while APD has a positive impact, indicating that efficient receivables collection and extended payable terms improve profitability. ITD and CCC were found to be statistically insignificant in accounting performance models. In contrast, TOBQ is negatively affected by both ARD and CCC, implying that longer receivables periods and cash cycles diminish market valuation by heightening liquidity risk and financial leverage. Notably, ROA and not ROE, emerged as a significant predictor of TOBQ, reinforcing the view that operational efficiency, rather than equity-based returns, is more valued by investors. This research adds to the literature by quantifying the dual impact of WCM on internal performance and external valuation in a capital-intensive industry. Although centered on the automotive sector, the findings may be cautiously generalized to other manufacturing industries with similar operational frameworks. The study underscores WCM’s strategic importance as a lever for both internal performance enhancement and external value creation. Our findings offer actionable insights for operational managers and policymakers, emphasizing the need for optimized capital strategies that bridge operational finance and market performance for enhancing shareholder value.