Does Optimizing the Cash Conversion Cycle Ameliorate Firm’s Performance? Unraveling the Relationship in the Indian Corporate Landscape

Abstract

This chapter examines the impact of working capital management (WCM now onwards) which is measured by cash conversion cycle (CCC now onwards) on the financial performance of firms in the Indian context. The period of study is from the year 2000 to 2014, that is, for a span of 15 years for 4,687 companies listed on the National Stock Exchange. This chapter uses regression model to analyze panel data. Data for 4,687 listed companies have been analyzed for a period of 15 years. For some companies with data availability issues, the period of inclusion is less than 15 years. This chapter is limited to a sample of Indian firms; further research could examine the generalizability of these findings to other countries. Some previous studies have been undertaken on this topic, but the dataset used for this chapter is comprehensive enough to delineate the WCM and performance dynamics in the Indian context. Improved working capital policy could improve firm profitability by reducing the firm’s CCC, thereby creating additional firm value. In addition, the results can be used for other purposes, including monitoring of firms by auditors, debt holders, and other stakeholders. This chapter contributes to the literature by extending the extant literature in an emerging market context. To the authors’ knowledge, this is the first empirical study to address this issue in the Indian context based on a large dataset covering more than 4000 companies.

Citation

Tripathi, N. and Ahamed, N. (2016), "Does Optimizing the Cash Conversion Cycle Ameliorate Firm’s Performance? Unraveling the Relationship in the Indian Corporate Landscape", The Spread of Financial Sophistication through Emerging Markets Worldwide (Research in Finance, Vol. 32), Emerald Group Publishing Limited, Leeds, pp. 243-255. https://doi.org/10.1108/S0196-382120160000032010