Review of Literature on Working Capital Management and Future Research Agenda

Abstract

The purpose of this study is to take a stock of what has been studied on working capital management (WCM) so far and ascertain the factors which are more likely to be impacted by poor WCM. Moreover, it aims to spell out the areas for further research on WCM so that the body of knowledge can be expanded. A systematic literature review of the research works on WCM has been performed using Google Scholar. Articles with citations of 50 and above as of June 05, 2018 are considered for the detailed citation based analysis. Further, classification of such articles has been done on the basis of common themes followed by a thorough content analysis. The citation based analysis suggests that there is a growing popularity of studies related to WCM in recent times. However, majority of the impactful studies are published in relatively lower category journals. This further intrigues us to explore the content of such studies. Based on the content, the studies are classified under five different themes. It is found that majority of the highly cited articles have examined the relation between the WCM and profitability of the firms. Moreover, repetitive uses of few proxies in such studies have also been identified. This finding most probably explains the reason behind so many highly cited articles getting published in relatively lower category journals. In view of this, this study tries to explore further scope of research on WCM and lists down potential research questions for the future researches. Firstly, it provides an idea about the most cited area of researches related to WCM and the recent growth of studies in this domain. Academicians can decide upon their future area of research based on the findings related to the proxies and outcome from these studies. Secondly, it shows the most popular avenue of publishing the articles related to WCM which will certainly motivate the researchers to pursue such study. It has been found from the analysis that majority of the impactful articles are published in lower category journals. Therefore, this study identifies the reason behind the same and lists down some innovative research questions to provide some future research directions. Thirdly, the finance managers can use this finding to identify the relevant consequences of poor WCM. Finally, it can serve as a reference point for all future ideas related to WCM. The paper classifies the present literature on WCM into five major themes and performs a content analysis of the same. This is essential as the content analysis highlights different proxies used as inputs which effectively drive efficient WCM. Moreover, the study also identifies the huge scope of future research in the domain of WCM. According to our limited knowledge, such extensive literature review on WCM is rare.

The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

“…The divergence can be explained by different measures used for working capital: cash conversion cycle (Dalci et al 2019;Shrivastava et al 2017;Ukaegbu 2014), most popular indicator used as proxy, net trade cycle (Baños-Caballero et al 2014) or other measures (Inventory Turnover Ratio, Working Capital Turnover Ratio). Using these measures, in most of the studies, working capital is expressed as a composite measure (Prasad et al 2019), but there are also a few studies that have examined the impact of working capital on profit, at the level of individual components of cash conversion cycle or net trade cycle (Enqvist et al 2014). Moreover, Mahmood et al (2019) provide several reasons to explain why companies may exhibit a different working capital-profitability: ownership structures, financial flexibility, tax provisions, and leverage.…”

Effects of working capital management on firms' profitability: evidence from cheese‐producing companies

“…As noted by Prasad, Narayanasamy, Paul, Chattopadhyay, and Saravanan (2019), empirical literature analyzing the effect of WCM on firm profitability has become highly popular among academics in the last two decades (see Table 1). More specifically, 13 of the 20 references reported in Table 1, which summarizes the most important studies on the topic, were published after 2010.…”

The Impact of Institutional Performance on Payment Dynamics: Evidence From the Italian Manufacturing Industry

“…or public limited companies (i.e., S.P.A.); -specific features of companies and their ability to innovate, i.e., dummy control variables indicating whether a company is an "innovative start-up" or an "innovative small medium enterprise". The analysis of working capital is relevant because it represents firms' self-financing (Shubita, 2019;Prasad et al, 2019;Gill et al, 2019). Positive values represent the financial solvency of firms in the short term, while negative results mean that some assets are financed by current liabilities.…”