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Article
Publication date: 1 March 1978

Robert F. Lusch and James M. Kenderdine

Between 1970 and 1976 the competitive and economic environment in which retailers operated experienced a turbulence unprecedented in recent history. During this period the

Abstract

Between 1970 and 1976 the competitive and economic environment in which retailers operated experienced a turbulence unprecedented in recent history. During this period the compression of institutional life cycles coupled with dramatic shifts in consumer life styles plagued many retailers. In addition, a web of other factors, such as steadily increasing interest rates and inflation, a heightening of inter‐type competition and the competitive entry pressure created by a large inventory of vacant retail space, made it increasingly difficult to both assess and predict the environment. These environmental conditions have intensified pressures on retailers to improve their profit performance, both to insure survival in an increasingly uncertain environment and to provide a basis for future growth. At the same time, these conditions have exacerbated the retailer's problems in trying to obtain new capital. Unable to generate sufficient capital internally to finance both market repositioning and new growth, retailers have found themselves in many instances unable to afford the costs of new debt (if indeed they had the capacity to support it). At the same time, investor uncertainty, regarding both the future and the ability of retailers to adapt to it, has reduced the flow of new equity capital into retailing to a bare trickle. In short, retailers during this period have recognised the critical need to manage capital more efficiently.

Details

International Journal of Physical Distribution & Materials Management, vol. 8 no. 6
Type: Research Article
ISSN: 0269-8218

Book part
Publication date: 19 June 2019

Chosita Pestonji and Sareeya Wichitsathian

This research investigates (1) the impacts of working capital investment policy and working capital financing policy on firms’ performances (profitability and market…

Abstract

This research investigates (1) the impacts of working capital investment policy and working capital financing policy on firms’ performances (profitability and market value) and (2) the impact of profitability on market value. Data are gathered from 68 companies listed in the Stock Exchange of Thailand covering production sector. Data collected from 2012 to 2016 are analyzed using path analysis to measure the impacts of working capital policy on performances and examine the consistency of the model and the empirical data.

The model is found to be consistent with the empirical data; the probability level is 0.085, χ 2/df is 2.96, CFI is 0.951, GFI is 0.979, IFI is 0.957, and RMR is 0.004. The result reveals a statistically significant positive relationship between working capital investment policy and profitability. In addition, working capital investment policy affects market value through profitability as a mediator variable. However, there are significant negative impacts of working capital financing policy on profitability and market value. Overall, it can be implied that companies which adopt conservative working capital investment policy and conservative working capital financing policy can increase their profitability and market value.

Details

Asia-Pacific Contemporary Finance and Development
Type: Book
ISBN: 978-1-78973-273-3

Keywords

Article
Publication date: 1 May 1991

M.K. Kolay

The article analyses the “pros” and “cons”of different strategies to be adopted to manage and avoid workingcapital crisis situations in any organisation. The working

1083

Abstract

The article analyses the “pros” and “cons” of different strategies to be adopted to manage and avoid working capital crisis situations in any organisation. The working capital position depends on many organisational parameters which are interrelated and interdependent, and also vary over time. In such a situation, the use of a system dynamics approach has been advocated to reflect the relevant dynamic cause‐and‐effect relationships for the development of appropriate long‐term and short‐term strategies.

Details

Management Decision, vol. 29 no. 5
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 1 March 1984

C.L. Pass and R.H. Pike

Over the past 40 years major theoretical developments have occurred in the areas of longer‐term investment and financial decision making. Many of these new concepts and…

2476

Abstract

Over the past 40 years major theoretical developments have occurred in the areas of longer‐term investment and financial decision making. Many of these new concepts and the related techniques are now being employed successfully in industrial practice. By contrast, far less attention has been paid to the area of short‐term finance, in particular that of working capital management. Such neglect might be acceptable were working capital considerations of relatively little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. Indeed, experience shows that inadequate planning and control of working capital is one of the more common causes of business failure.

Details

Managerial Finance, vol. 10 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 15 July 2021

Gaurav Singh Chauhan

The article highlights potential mismeasurement in working capital allocations among academicians and practitioners and revisits the relationship between firms' working

Abstract

Purpose

The article highlights potential mismeasurement in working capital allocations among academicians and practitioners and revisits the relationship between firms' working capital and productivity, as evident from their values.

Design/methodology/approach

The research design acknowledges the relative role of firms' working capital vis-a-vis other assets in generating revenue, thereby effectively accounting for the overall asset efficiency in influencing firm value. The authors use a multivariate framework to draw inferences from the marginal impact of working capital and its components on firm value while controlling for asset utilization.

Findings

The authors find that, after accounting for asset utilization, the marginal impact of working capital and its components on firm value is quite weak. The results are consistent with the hypothesis that firms' trade-off between short-term and long-term assets per se should not have any value implications. After controlling for their asset turnovers, the authors find that higher allocations to working capital relative to other assets are not necessarily value-destructive. The findings contrast with the past literature.

Research limitations/implications

The article, through its analytical and empirical insights, suggests that working capital allocations should be measured by managers and academicians relative to firms' other asset rather than their sales. Firm values should, therefore, be compared based on firms' overall asset utilization rather than inter-temporal allocations to short-term versus long-term assets.

Originality/value

Contrary to the existing literature so far, the article explicitly acknowledges the relative role of firms' other assets, and hence the overall asset utilization, to infer the marginal impact of working capital on firm value.

Details

International Journal of Productivity and Performance Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 19 February 2019

Amr Ahmed Moussa

The purpose of this paper is to empirically analyze and identify key factors affecting working capital behavior of companies listed on the Egyptian Stock Exchange.

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Abstract

Purpose

The purpose of this paper is to empirically analyze and identify key factors affecting working capital behavior of companies listed on the Egyptian Stock Exchange.

Design/methodology/approach

Working capital requirement and cash conversion cycle were used to proxy working capital behavior. The study explored nine main factors widely discussed in previous research to explain working capital behavior: operating cash flow, growth opportunities, performance, firm value, age, size, leverage, economic conditions and industry type. The study employed a panel data analysis for 68 listed Egyptian industrial firms for the period 2000–2010. Different techniques of the generalized method of moments were used to test the validity of the research hypotheses.

Findings

The results show that working capital behavior is affected by various factors related to firm characteristics, economic conditions and industry type.

Originality/value

This study provides financial managers with a better understanding of the impact of different internal and macroeconomic factors on working capital behavior in an emerging market, such as Egypt’s.

Details

International Journal of Managerial Finance, vol. 15 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 22 August 2022

Oscar F. Briones, Segundo M. Camino-Mogro and Veronica J. Navas

The purpose of this research is to examine Micro-, small- and medium-sized enterprises (MSMEs). Which have limited access to financial resources from financial…

Abstract

Purpose

The purpose of this research is to examine Micro-, small- and medium-sized enterprises (MSMEs). Which have limited access to financial resources from financial intermediaries. Thus, resource allocation is a primary concern for them.

Design/methodology/approach

This research studies the determinants of cash conversion cycle components and cash flow of MSMEs operating in Ecuador. This study examined a robust sample of 19,680 firms from 2000 to 2020, using the two-step generalized methods of moments to control for endogeneity and multicollinearity of independent variables issues.

Findings

The sample was divided into working capital intensive and fixed capital intensive firms. It was found that in every segment (micro-, small- and medium-sized), the majority of firms are working capital intensive and their average return is higher. This implies that small business owners assign the majority of their resources to current assets, which thus far have enabled them to achieve higher profitability.

Originality/value

Research investigated Ecuadorian MSMEs in a dollarized developing environment. Scrutinizing working capital intensive vs fixed capital intensive.

Details

Journal of Entrepreneurship in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2053-4604

Keywords

Article
Publication date: 31 March 2021

Filipe Sardo and Zélia Serrasqueiro

This study seeks to analyse the determinants of working capital of manufacturing small and medium-sized enterprises (SMEs), particularly the effect of the probability of…

Abstract

Purpose

This study seeks to analyse the determinants of working capital of manufacturing small and medium-sized enterprises (SMEs), particularly the effect of the probability of financial distress on working capital.

Design/methodology/approach

Using panel data models, the authors analyse a sample of 3994 manufacturing SMEs for the period 2011–2017.

Findings

The results suggest that SMEs pursue conservative working capital management to avoid the failure to fulfil the commitments with creditors. Also, the positive impact of the probability of financial distress on SME working capital suggests that SMEs exposed to a higher probability of bankruptcy invest more in working capital to avoid the risk of default and financing imbalance.

Originality/value

The novelty of this study is to extend the consequences of aggressive or conservative working capital management by analysing the probability of financial distress on working capital.

Details

Journal of Economic Studies, vol. 49 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 28 August 2020

Himanshu Seth, Saurabh Chadha and Satyendra Sharma

This paper evaluates the working capital management (WCM) efficiency of the Indian manufacturing industries through data envelopment analysis (DEA) and empirically…

Abstract

Purpose

This paper evaluates the working capital management (WCM) efficiency of the Indian manufacturing industries through data envelopment analysis (DEA) and empirically investigates the influence of several exogenous variables on the WCM efficiency.

Design/methodology/approach

WCM efficiency was calculated using BCC input-oriented DEA model. Further, the panel data fixed effect model was used on a sample of 1391 Indian manufacturing firms spread across nine industries, covering the period from 2008 to 2019.

Findings

Firstly, the WCM efficiency of Indian manufacturing industries has been stable over the analysis period. Secondly, the capacity to generate internal resources, size, age, productivity, gross domestic product and interest rate significantly influence WCM efficiency.

Research limitations/implications

First, the selected study period has observed various economic uncertainties including demonetization and recession, so the scenario might differ in normal conditions or country-wise. Second, the findings might not be generalizable to the developed economies, since the current study sample belongs to a developing economy, which further provides scope for comparative study.

Practical implications

An efficient model for managing the working capital comprising most vital determinants could enhance the firms' valuation and goodwill. Also, this study would be helpful for financial executives, manufacturers, policymakers, investors, researchers and other stakeholders.

Originality/value

This study estimates the industry-wise WCM efficiency of the Indian manufacturing sector and suggests measures to the concerned parties on areas to focus on and provide evidence on the estimated relationships of firm-level and macroeconomic determinants with WCM efficiency.

Details

International Journal of Productivity and Performance Management, vol. 70 no. 7
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 8 April 2014

Anna-Maria Talonpoika, Sari Monto, Miia Pirttilä and Timo Kärri

The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce…

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Abstract

Purpose

The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a modification of this measure that takes into account advance payments as a component of operational working capital.

Design/methodology/approach

A new measure, the modified cash conversion cycle (mCCC) is introduced and tested with empirical data of companies in Helsinki Stock Exchange.

Findings

The mCCC reveals the real efficiency of operational working capital in companies that receive advance payments to a remarkable extent.

Research limitations/implications

The mCCC can be used in empirical analysis in academic studies. In this paper, the empirical data are used only for testing the mCCC. The paper concerns received advance payments, but the mCCC can also be extended also to other components of operational working capital ignored by the traditional CCC.

Practical implications

The paper offers insights into the variations of CCC for class teachers, and business practitioners, particularly financiers, who deal with operational working capital, cash flow predictions and calculations.

Originality/value

There are current items that may have a remarkable effect on operational working capital, but traditionally only inventories, accounts receivable and accounts payable are discussed. The authors argue that also other current items should be taken into account, if they affect the efficiency of operational working capital. The new mCCC is encouraged to be used instead of the CCC when observing working capital management.

Details

International Journal of Productivity and Performance Management, vol. 63 no. 3
Type: Research Article
ISSN: 1741-0401

Keywords

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