Working Capital, Corporate Performance and Financial Constraints: Evidence from Listed Firms in Tehran Stock Exchange

This study investigates the relationship between working capital and corporate performance and keeping in mind that financial situations may have an important role in this regard, the relationship between the optimal level of working capital with financial constraints was examined. The sample consists of 82 companies listed in Tehran Stock Exchange during the period from 1388 to 1392. Tobin’s Q is used as a proxy for corporate performance, while net trade cycle (NTC) is used as proxy for working capital and dividend (DIV), Interest coverage (IC), ww index (WW), kz index (KZ), cash flow (CF) used as a proxy for financial constraints.The panel regression analysis (with fixed effect) is utilized to test the hypotheses. The results show that there is an inverse u-shaped relationship between the working capital and corporate performance and the optimal level of working capital for companies that have greater financial constraints (except Interest coverage) is lower.