Working capital management, firm performance and nature of business

Abstract

PurposeThis paper aims to investigate the impact of the efficiency of working capital management (WCM) on the performance of a sample of Indian companies and explore how the nature of the firm's business influences the significance and direction of this impact.Design/methodology/approachThe data for this study were collected for the period of 2012–2018 for 414 non-financial firms listed on the Bombay Stock exchange. Fixed-effect regression models were run by taking Tobin's Q and return on equity (ROE) as dependent variables, and net trade cycle (NTC) and its components as explanatory variables in the presence of liquidity, leverage, size, age and growth as control variables. Sample firms were segregated into manufacturing, trading and service groups, and regression models were used for all the groups to understand the effect of the nature of a firm's business.FindingsWCM efficiency has a significant impact on the performance of the sample firms. Non-financial Indian firms deliver better financial performance by maintaining lower NTC. Like NTC, its components also impact firm value and profitability. The results report that the significance of the relationship varies depending upon the nature of the firm's business.Originality/valueThe previous research studies had not used a sample of large number of Indian firms. Unlike previous studies, this study reports the influence of the nature of business on the relationship between WCM and firm performance. Further, this paper also examines how the individual components of working capital influence the performance of Indian firms.

Exploring predictors of working capital management efficiency and their influence on firm performance: an integrated DEA-SEM approach

“…Taani (2012) found a significant influence of WCM and leverage on the financial performance of Jordanian firms. Similarly, Sawarni et al (2020) investigated Indian nonfinancial firms from 2012 to 2018 and found firms' performance had a considerable effect from WCM efficiency and leverage. Goel and Sharma (2015a) concluded a negative association between leverage and WCM efficiency of manufacturing firms in India for over ten years.…”

Cash Conversion Cycle Sensitivity by Moderating Role of Exchange Rates Volatility on Firm’s Financial Performance

“…The results revealed an unfavourable association between ROA and the cash conversion cycle. Notably, the difference in Tobin's Q model shows that CCC had no meaningful impact on companies' net worth (Sawarni et al, 2020). Because specific historical studies have observed and show that the management of working capital by the organization (which results in a reduced cash conversion cycle) leads to increased accounting efficiency, this work argues that:…”

“…The longer the CCC, the higher the assets that are in WC. Accordingly, the situation is important to discover a proper plus advance achievement (result) portion which clearly and straightly describes the influence of the companies' WC productivity (Sawarni et al, 2020). Several investigations identified the CCC's influence on the business' financial achievements (Seth et al, 2020).…”

Aspek Keuangan Yang Mempengaruhi Kinerja Perusahaan Menggunakan Nilai Pasar Tobin’s Q

“…Dari sudut pandang internal perusahaan tentang pengelolaan modal kerja, pada periode setelah terjadi defisit neraca posisi CR menduduki posisi yang lebih baik dibandingkan dengan posisi periode sebelum defisit neraca. H6 : Pengaruh RCP, ICP, PDP, CCC dan CR terhadap kinerja perusahaan sebelum dan setelah defisit neraca perdagangan Penelitian lain yang memperkuat hasil pengujian hipotesis 6 dilakukan oleh Sawarni et al, (2020) dimana variabel independen secara bersama sama memiliki pengaruh signifikan terhadap kinerja perusahaan. Pengelolaan modal kerja tidak dapat dipisahkan dari kelebihan aset lancar.…”