Enhancing Shareholder Value Through Efficient Working Capital Management: An Empirical Evidence from India

Saravanan, Palanisamy; Srikanth, M.; Shaw, Tara Shankar; N, Sivasankaran

doi:10.2139/ssrn.3114164

Cited by 7 publications

(14 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…WCM has become one of the non-trivial issues in organizations, where many finance managers find it difficult to distinguish the important drivers of working capital and to decide on the optimal level of working capital (Smith, 1987; Lamberson, 1995). Most of the studies have focused on working capital practices of firms belonging to developed countries and very few studies reflect the same of firms operating in emerging economies, such as India (Saravanan et al , 2017).…”

Section: Introductionmentioning

confidence: 99%

Measuring impact of working capital efficiency on financial performance of a firm

Prasad¹,

Narayanasamy

Paul

et al. 2019

JIBR

View full text Add to dashboard Cite

Purpose The purpose of this study is to introduce working capital efficiency multiplier (WCEM) as a direct profitability measure of working capital management. The existing accounting measures in the literature establish an indirect approach to study the relationship between working capital efficiency and profitability of the firms. Design/methodology/approach Using the help of a set of companies from CMIE Prowess database, the study introduces WCEM as a direct profitability measure of working capital efficiency. Findings In this study, a new direct measure of working capital efficiency is introduced which is multiplicative in nature. WCEM is a product of three components, namely, WACC, ratio of the sum of trade receivables and inventories to trade payables and ratio of net working capital (NWC) to net sales. Practical implications The importance of direct measure like WCEM could be enormous in performance evaluation of a firm. It can be used as an indicator for choosing a suitable investment opportunity by an investor. This is due to the fact that the firm that is highly efficient in managing working capital is less exposed to liquidity risk. At the same time, the firm is less dependent on external financing. Therefore, such firms eventually create more value for their shareholders. Another indication that WCEM provides is to gauge the bargaining power of the firm and its competitive position in the market. Lower WCEM indicates higher bargaining power of a firm across the value chain, and its superior position relative to its competitors. Originality/value Most of the studies on WCM are of the empirical type and there is a complete dearth on theoretical framework. Researchers hereafter can consider WCEM as one of the financial performance variables in place of the existing measures such as return on asset (ROA), return on invested capital (ROIC), return on equity (ROE), gross operating income (GOI) and net operating income (NOI) and thereby can contribute new empirical insights through their research outcomes.

show abstract

Section: Introductionmentioning

confidence: 99%

Measuring impact of working capital efficiency on financial performance of a firm

Prasad¹,

Narayanasamy

Paul

et al. 2019

JIBR

View full text Add to dashboard Cite

show abstract

“…The left-hand-side variable of the research model is return on assets, a very common profitability measure used as a proxy for financial performance (Charitou, Elfani and Lous, 2010;Falope and Ajilore, 2009;Jose, Lancaster and Stevens, 1996;Saravanan, Sivasankaran, Srikanth and Shaw, 2017;Shin and Soenen, 1998;Şamiloğlu and Demirgüneş, 2008). Profitability is used as a common proxy for financial performance, as it evaluates the efficiency regarding with that tangible assets and net current assets are transformed into profits.…”

Section: Variable Construction Descriptive Statistics and Research Mmentioning

confidence: 99%

Asset Tangibility and Financial Performance: A Time Series Evidence

İltaş

Demirgüneş

2020

Ahi Evran Üniversitesi Sosyal Bilimler Enstitüsü Dergisi

View full text Add to dashboard Cite

Since 1980s, firms' asset investments have more or less tended to shift from tangible to intangible investments. This tendency is also valid for Turkish manufacturing firms. Despite the increasing importance of intangible asset investments, their role on financial performance is subject to considerable debate. These investments are riskier compared to tangible asset investments and cannot easily be used as collateral in corporate borrowing. Tangible assets offering high guarantee are pledged as the primary source of collateral in corporate borrowing. Consequently, a firm with higher asset tangibility is likely to lower external financing costs, leading higher financial performance. This paper analyzes the effect of asset tangibility on financial performance of Turkish manufacturing sector covering 1990.Q3-2016.Q4. The stationarity of series and the cointegration relationship among them are tested by ADF (1979; 1981), KPSS (1992), and Zivot and Andrews (1992) unit root tests, and one-break Gregory and Hansen (1996) cointegration test. Long-run coefficients estimated by Stock and Watson (1993)'s DOLS methodology posit that asset tangibility, financial leverage, liquidity and operating efficiency have significant and positive effects on financial performance till (and including) the break date. However, from this break date on, they affect financial performance negatively.

show abstract

“…Besides, managers consider not only investments in fixed assets, but also the required level of working capital while making capital budgeting decisions. Efficient utilisation of fixed assets is possible only when the company has an adequate amount of working capital, which affects not only accounting measures of performance, i.e., profit margins (Raheman and Nasr, 2007;Saravanan et al, 2017), but also market measures of performance such as Tobin's Q (Samiloglu and Demirgunes, 2008;Mohamad and Saad, 2010;Islam, 2016).…”

Section: Introductionmentioning

confidence: 99%

“…Numerous studies have emphasised the importance of WCM and its role on the firm's performance (Shin and Soenen, 1998;Wang, 2002;Deloof, 2003;Samiloglu and Demirgunes, 2008;Falope and Ajilore, 2009;Mathuva, 2009;Dong and Su, 2010;Banos-Caballero et al, 2012;Abiodun and Samuel, 2014;Saravanan et al, 2017). However, few studies have examined the impact of corporate governance on the WCM of firms in developed countries (Dittmar and Mahrt-Smith, 2007;Pinkowitz et al, 2003;Kusnadi, 2011;Gill and Biger, 2013).…”

Section: Introductionmentioning

confidence: 99%

Does corporate governance influence the working capital management of firms: evidence from India

Prasad

Narayanasamy

Saravanan

et al. 2019

IJCG

Self Cite

View full text Add to dashboard Cite

The study explores the impact of corporate governance on the working capital management of Indian firms. The investigation has been performed using balanced panel data procedures for a sample of 323 Indian non-financial firms listed in the Bombay Stock Exchange for the period 2007-2017. Findings of our study indicate that the CEO duality, one of the nine board indicators play a role in improving the working capital management of the sample firms. The default tax payment of the legal indicator and the additional information disclosure of the proactive indicators also have an effect on the working capital management of the Indian non-financial firms. This study is unique as it reveals the impact of corporate governance on the working capital management of Indian non-financial firms.

show abstract

Enhancing Shareholder Value Through Efficient Working Capital Management: An Empirical Evidence from India

Cited by 7 publications

References 0 publications

Measuring impact of working capital efficiency on financial performance of a firm

Measuring impact of working capital efficiency on financial performance of a firm

Asset Tangibility and Financial Performance: A Time Series Evidence

Does corporate governance influence the working capital management of firms: evidence from India

Contact Info

Product

Resources

About