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Redesigning the efficiency process analysis for working capital models: Evidences from the determinants

Himanshu Seth (Department of Management, Birla Institute of Technology and Science, Pilani, India)
Saurabh Chadha (Department of Management, Birla Institute of Technology and Science, Pilani, India)
Satyendra Sharma (Department of Management, Birla Institute of Technology and Science, Pilani, India)

Journal of Global Operations and Strategic Sourcing

ISSN: 2398-5364

Article publication date: 19 July 2019

Issue publication date: 10 February 2020

Abstract

Purpose

The purpose of this study is to get insights into working capital management (WCM) practices and the determinants of its efficiency prevailing in the Indian manufacturing sector using firm-specific as well as macro-economic variables by examining three efficiency models, i.e. cash conversion cycle (CCC), cash conversion efficiency (CCE) and net working capital level (NWCL).

Design/methodology/approach

The study uses panel data techniques on 1,207 firms of the Indian manufacturing sector, as well as on its nine key manufacturing industries from 2008 to 2018 for the analysis.

Findings

Several firm-specific variables such as net fixed asset ratio, size of the firm, profitability, firm’s growth, asset turnover ratio, age of the firm, interest rate and leverage have significant effect on WCM efficiency, whereas total assets growth rate, gross domestic product growth rate and inflation rate have insignificant effect on WCM efficiency.

Research limitations/implications

The study provides new empirical evidence on the short-term liquidity management of manufacturing firms prevailing in the developing countries such as India. The findings are particularly relevant in the present scenario when the liquidity levels are decelerating and there is a marked slowdown in private credit flows to the manufacturing sector due to the problem of burgeoning non-performing assets.

Originality/value

This study examines WCM efficiency exhaustively by incorporating both firm-specific and macro-economic variables using three efficiency measures, i.e. CCC, CCE and NWCL, results of which emerged as an answer to an efficient WCM.

Keywords

Citation

Seth, H., Chadha, S. and Sharma, S. (2020), "Redesigning the efficiency process analysis for working capital models: Evidences from the determinants", Journal of Global Operations and Strategic Sourcing, Vol. 13 No. 1, pp. 38-55. https://doi.org/10.1108/JGOSS-04-2019-0029

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited