Assessing working capital management efficiency of Indian manufacturing exporters

Abstract

PurposeThe purpose of this paper is to empirically investigate the relationship between working capital management (WCM) efficiency and exogenous variables of the Indian manufacturing sector along with its sub-industries that are involved in export activities.Design/methodology/approachPanel regression (fixed effects) was used on a sample of 563 Indian manufacturing firms involved in export activities, covering a time period from 2008 to 2018.FindingsIndustry-wise results showed a significant relation of leverage, net fixed asset ratio, profitability, asset turnover ratio, total asset growth rate and productivity with cash conversion cycle (CCC).Research limitations/implicationsFirstly, having taken a sample from a developing economy, the results of our study may be generalizable only among developing contexts. Secondly, the time period taken in this study (2008–2018) has witnessed several economic fluctuations such as recession and demonetization which might differ for the firms or countries in normal conditions.Practical implicationsAn improved working capital model could advance the firms' performance by reducing the CCC of the firm, thereby creating efficiency in WCM. In addition, the results of this study could be helpful for many stakeholders such as working capital managers, debt holders, investors, financial consultants and others for monitoring the firms.Originality/valueThis study contributes to the existing literature in the relation between WCM efficiency and exogenous variables of the Indian manufacturing firms engaged in the export activities. Moreover, this study is one of the few research studies to investigate this relationship among Indian export firms in different industries, thus filling the gap in similar work done in other countries.

Exploring predictors of working capital management efficiency and their influence on firm performance: an integrated DEA-SEM approach

“…Sharma et al (2020) found a positive influence of working capital on firms' performance using data of 150 Bombay Stock Exchange (BSE)-listed firms over the period 2009-2017. Seth et al (2020a) found that a decrease in the CCC (used as a measure for WCM efficiency) is allied with the consequent growth of fixed assets in Indian manufacturing firms over the period 2009-2019. Otherwise, in case of excessive working capital in firms, the unnecessary portion is to be redeployed in higher-valued uses such as fixed assets, causing higher performance in firms (Aktas et al, 2015).…”

“…Productivity reveals the working capacity of the firm denoting the sales done against wages incurred. Firms need to undergo several nonrecoverable costs for long-term sustainability (Seth et al, 2020a). Such costs comprise creation of distribution channels, customized offerings, advertising, and, most importantly, recognizing the characteristics, inclinations Working capital management efficiency and requirements of every type of customer.…”

Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis

“…WC meets a company entrepreneur's short-term financial needs (Luc, 2018;Tan et al, 2019Tan et al, , 2020. The lower cash flows lead to less need for funding and lower capital costs, which, in turn, increase the levels of investor capital (Seth et al, 2020). Efficient WC has become an essential instrument for continuing companies to improve overall profitability and benefit from the industry (Peng and Zhou, 2019).…”

Cash Conversion Cycle Sensitivity by Moderating Role of Exchange Rates Volatility on Firm’s Financial Performance

“…Accordingly, the situation is important to discover a proper plus advance achievement (result) portion which clearly and straightly describes the influence of the companies' WC productivity (Sawarni et al, 2020). Several investigations identified the CCC's influence on the business' financial achievements (Seth et al, 2020). These investigations addressed an overall return on assets, equity return (ROE), as a proxy for the profits of companies.…”