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Working capital management, firm performance and nature of business: An empirical evidence from India

Kumar Sanjay Sawarni (Doctoral Participant, Indian Institute of Management Ranchi, Ranchi, India)
Sivasankaran Narayanasamy (Department of Finance, XLRI Jamshedpur School of Business and Human Resources, Jamshedpur, India)
Kanagaraj Ayyalusamy (Department of Finance, XLRI Jamshedpur School of Business and Human Resources, Jamshedpur, India)

International Journal of Productivity and Performance Management

ISSN: 1741-0401

Article publication date: 9 March 2020

Issue publication date: 30 December 2020

1885

Abstract

Purpose

This 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/approach

The 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.

Findings

WCM 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/value

The 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.

Keywords

Citation

Sawarni, K.S., Narayanasamy, S. and Ayyalusamy, K. (2021), "Working capital management, firm performance and nature of business: An empirical evidence from India", International Journal of Productivity and Performance Management, Vol. 70 No. 1, pp. 179-200. https://doi.org/10.1108/IJPPM-10-2019-0468

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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