Decisions pertaining to working capital management have pivotal role for firms’ short-term financial decisions. The purpose of this paper is to examine impact of working capital on profitability for Indian corporate entities.
Both classical panel analysis and Bayesian techniques have been employed that provides opportunity not only to perform comparative analysis but also allows flexibility in prior distribution assumptions.
It is found that longer cash conversion period has detrimental influence on profitability. Financial soundness indicators are playing significant role in determining firm profitability. Larger firms seem to be more profitable and significant as per Bayesian approach. Bayesian approach has led to considerable gain in estimation fit.
Observing the highly skewed distribution of dependent variable, Multivariate Student t-distribution has been considered along with normal distribution to model stochastic term. Accordingly, Bayesian methodology is applied.
Analysis of working capital for firms has been performed in Indian context. Application of Bayesian methodology is performed on balanced panel spanning from 2003 to 2012. As per author’s knowledge, this is the first study which applies Bayesian approach employing panel data for the analysis of working capital management for Indian firms.
The authors are grateful to anonymous referees for useful comments. The study also benefitted from inputs received in conference held at the Central University of Rajasthan, August 24-25, 2015. The views expressed in this paper are exclusively of the authors and need not necessarily belong to the organization to which they belong.
Shrivastava, A., Kumar, N. and Kumar, P. (2017), "Bayesian analysis of working capital management on corporate profitability: evidence from India", Journal of Economic Studies, Vol. 44 No. 4, pp. 568-584. https://doi.org/10.1108/JES-11-2015-0207Download as .RIS
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