Economic value added and working capital efficiency linkages: an Indian context

Abstract

Purpose

This paper aims to explore the relationship between the economic value added (EVA) and the working capital efficiency (WCE) of the listed firms in India.

Design/methodology/approach

This paper uses annual data of 401 listed companies for the period 2012–2019. Furthermore, the dynamic panel data regression model was used to investigate the relationship between the variables of interest.

Findings

The results reveal that the net trade cycle (NTC) is significantly and negatively associated with listed firms’ economic value in India, indicating that a shorter NTC generates higher EVA for Indian firms. The authors further explore the association between individual components of the NTC with EVA. The authors also found that an inverse, and significant relationship exists between EVA and the individual components of the NTC. The findings also reported a meaningful relationship between EVA and control variables except for leverage and age. For listed firms, the results suggest that sales growth and firm size are crucial factors driving firms’ EVA.

Practical implications

Higher WCE enhances shareholder value creation, forming positive stakeholders’ expectations toward the company.

Originality/value

Over the years, many studies have been conducted to determine the relationship between WCE and traditional measures of firms’ profitability. However, hardly any study finds out the impact of WCE on the value-based measures of firms’ performance. This study fills the gap in the existing literature by analyzing the impact of WCE on firms’ EVA.

Citation

Bhatia, P., Kumar, R., Chattopadhyay, S. and Dubey, R.K. (2024), "Economic value added and working capital efficiency linkages: an Indian context", Accounting Research Journal, Vol. 37 No. 6, pp. 557-573. https://doi.org/10.1108/ARJ-05-2023-0138