Financial constraints and speed of working capital adjustment
Asia-Pacific Journal of Business Administration
ISSN: 1757-4323
Article publication date: 5 September 2020
Issue publication date: 4 November 2020
Abstract
Purpose
The study examines the existence of target level of working capital and the speed of adjustment toward the target for eight manufacturing sectors of Indian economy. In addition, this study examines the impact of financial constraints on the speed of adjustment.
Design/methodology/approach
This study is based on secondary financial data of 1936 Indian manufacturing companies from eight sectors for a period of 18 years (2000–2018). This study employs two-step GMM techniques to arrive at results.
Findings
Results of the study confirm that firms do have target working capital, but the speed of adjustment from the current level of working capital to the target working capital is slow, and the speed of adjustment varies across sub-sectors. Moreover, we found that firms that are likely to be less constrained adjust their working capital quickly compared to firms facing high financial constraints.
Originality/value
This study contributes to working capital management literature by examining the speed with which the firms move toward their target and also the impact of financial constraints on the speed of adjustment across eight manufacturing sectors of Indian economy. Further, the study examines the impact of financial constraints on the speed of adjustment.
Keywords
Citation
Ahangar, N. (2020), "Financial constraints and speed of working capital adjustment", Asia-Pacific Journal of Business Administration, Vol. 12 No. 3/4, pp. 371-385. https://doi.org/10.1108/APJBA-05-2020-0145
Publisher
:Emerald Publishing Limited
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