CFO Magazine's "Working Capital Survey": Do Selected Firms Work for Shareholders?

The annual "Working Capital Survey" made its debut in 1997 in CFO Magazine. The survey ranks the efficiency of working capital management at 1,000 companies across 35 industries based on two measures of financial data: cash conversion efficiency and days of working capital. In this paper, we seek to determine whether shareholders reward companies that score high on the criteria used to determine a firm's rank by CFO Magazine. First, we test for share price announcement effects for firms named in CFO Magazine's "Working Capital Survey. "While there are significant positive abnormal returns for selected firms, the gains reverse themselves in subsequent days. Second, for each year of the survey, we test whether firms named to the top ten within their respective industries have holding period returns that exceed the returns of a matched sample. Sample firms outperform matched firms on a raw return basis, although these differences are not statistically significant. Both the Sharpe and Treynor measures of risk-adjusted return indicate that sample firms generally outperform the matched sample. Finally, we test whether annual returns are positively related to CFO Magazine's ranks of cash conversion efficiency and days of working capital. We find a positive relationship between a firm's return and its cash conversion efficiency rank but no relationship between return and days of working capital rank.