The oak and the reed: Working capital management and the role of business group affiliation

This study explores the role of business group affiliation in the working capital management of affiliated firms using a large sample of privately held firms in continental Europe. We show that small firms, but not medium-sized or large firms, affiliated with a business group have more operating working capital. This result is consistent with the hypothesis that affiliation with a business group relaxes financing constraints for affiliates’ investment in working capital. Additional results reveal a common financial management of working capital at the group level.