The purpose of this paper is to examine the relationship between working capital management (WCM) and firm profitability for a sample of 437 non-financial Indian companies.Design/methodology/approachThe study is based on secondary financial data obtained from Capitaline database, pertaining to a period of ten years. This study employs two-step generalized method of moments (GMM) techniques to arrive at results.FindingsThe results of the study confirm the inverted U-shape relationship between WCM and firm profitability. In addition, the authors also found that the firms should complete its CCC on an average by 63 days.Originality/valueUnlike prior studies that found a linear relationship between WCM and firm profitability. This study provides newer evidence for an inverted U-shaped relation between investment in working capital and firm profitability in India. In addition, this study uses GMM to control the potential problems of endogeneity.
Journal of Advances in Management Research – Emerald Publishing
Published: Jul 25, 2018
Keywords: India; Firm profitability; Working capital management; Panel data
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