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How does working capital management affect the profitability of Indian companies?

How does working capital management affect the profitability of Indian companies? 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

How does working capital management affect the profitability of Indian companies?

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0972-7981
DOI
10.1108/jamr-06-2017-0076
Publisher site
See Article on Publisher Site

Abstract

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

Journal of Advances in Management ResearchEmerald Publishing

Published: Jul 25, 2018

Keywords: India; Firm profitability; Working capital management; Panel data

References