Working capital and firm performance: role of COVID-19 disruption

Pant, Pushpesh; Rathore, Pradeep; Dadsena, Krishna Kumar; Shandilya, Bhaskar

doi:10.1108/ijppm-07-2022-0328

Cited by 4 publications

(3 citation statements)

References 113 publications

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“…Overall, the research literature indicates that the COVID-19 pandemic has led to significant changes in working capital management strategies for manufacturing firms, with many facing challenges related to cash flow, operational costs, and profitability Tarkom 2022;Hamshari et al 2022;Wadesango et al 2022;Pant et al 2023). In this study, our findings confirm that the COVID-19 crisis caused Iranian manufacturing companies to adopt working capital investment policies and also seek to increase the current ratio (CR) and cash to current assets (CTCA) ratio, while avoiding the policies of WC financing, operating cycle (OC), and receivables turnover.…”

Section: Discussionmentioning

confidence: 99%

“…Of course, this negative effect was mitigated by companies receiving government incentives (deferred taxes and investment tax credits). Through an analysis of Indian manufacturing firms, Pant et al (2023) found that these firms suffered financially post-COVID-19, since they significantly lacked the working capital to run day-to-day operations. In another study conducted in the Indian context, Kumar and Olasiuk (2024) showed a negative relationship between the cash conversion cycle (CCC) and leverage ratio with ROA during the challenging environment of the COVID-19 pandemic and confirmed that corporate profitability improves when firms reduce leverage, favor equity-based financing, and seek to increase the current ratio.…”

Section: Literature Reviewmentioning

confidence: 99%

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The Impact of Firm Risk and the COVID-19 Crisis on Working Capital Management Strategies: Evidence from a Market Affected by Economic Uncertainty

Tarighi,

Zimon,

Sheikh

et al. 2024

Risks

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The present study aims to investigate the impact of the COVID-19 crisis and firm risk on working capital management policies among manufacturing firms listed on the Tehran Stock Exchange (TSE). The study sample consists of 1200 observations and 200 companies listed on the TSE over a six-year period from 2016 to 2021; furthermore, the statistical method used to test the hypotheses is ordinary least squares (OLS). The results show that the COVID-19 pandemic has led managers to increase current assets to total assets ratio (CATAR), current ratio (CR), quick ratio (QR), net working capital (NWC), cash to current assets (CTCA) ratio, while it has caused a decrease in operational cycle (OC), days account receivables (DAR), and current liabilities to total assets ratio (CLTAR). Furthermore, we find that the higher the company’s risk, the more managers are motivated to embrace the working capital investment policy, net working capital, cash to current assets ratio, and cash conversion efficiency (CCE). In general, our findings indicate that during times of crisis, Iranian companies tend to adopt conservative working capital policies to ensure sufficient liquidity to respond appropriately to unforeseen events. In this study, the theory of liquidity preference aligns with the observed behavior of firms in response to the COVID-19 crisis and firm risk, where the emphasis on liquidity and short-term financial stability becomes paramount.

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Section: Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Firm Risk and the COVID-19 Crisis on Working Capital Management Strategies: Evidence from a Market Affected by Economic Uncertainty

Tarighi,

Zimon,

Sheikh

et al. 2024

Risks

View full text Add to dashboard Cite

show abstract

“…This may lead to a higher cost of WC and weigh down WCF. Empirical investigations show that Indian manufacturing firms, predominantly driven by imported inputs, have experienced high financial distress, with higher friction, costly trade credit, and a crunch in WC (Devalkar and Krishnan 2019;Pant et al 2023). Hence, it is pertinent to examine how firm foreign currency borrowings drive working capital financing to compensate for credit crunch amidst financial distress.…”

Section: Introductionmentioning

confidence: 99%

Role of Bank Credit and External Commercial Borrowings in Working Capital Financing: Evidence from Indian Manufacturing Firms

Tiwary,

Paul

2023

JRFM

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Determinants and levels of working capital financing (WCF) in the manufacturing sector have been empirically proven to impact firm profitability across emerging as well as developed nations. With time, firms adjust toward financing their working capital requirement (WCR), although the speed of adjustment, financing constraints, and bargaining power are subject to variations. In this study, we estimate the effect of bank credit and firm foreign currency borrowing on working capital financing with three distinct models for manufacturing firms in India. We examine the relationship between short-term foreign currency borrowings and WCF. Further, we investigate if the internal capital market affects WCF in the form of business group affiliation; lastly, we assess the impact of bank dependency and financial distress on WCF. We conclude that the debt–equity ratio becomes relevant, whereas firm characteristics such as age, size, and asset tangibility become irrelevant. Our original contribution to the literature is the finding that even smaller emerging market firms with well-managed, low debt exposure have improved access to WCF. Our results support that financial distress negatively impacts WCF but deviates from macroeconomic fundamentals, such as the GDP growth rate. This indicates deterioration in the health of Indian manufacturing, as a capital-intensive sector. Bank dependency remains significant, wherein smaller firms and those without a dividend pay-out continue to have longer cash conversion cycles and less efficient WCR. As a unique finding, we note foreign currency borrowings significantly contribute to WCF in the case of less developed credit markets in emerging economies such as India.

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Assessing trade supply chain vulnerability and trade participation of SMEs in India: insights from a comprehensive analysis

Sudan,

Taggar

2024

IJPPM

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PurposeThis study presents the impact of Economic Policy Uncertainty (EPU)-induced Trade Supply Chain Vulnerability (TSCV) on the Small and Medium-Sized Enterprises (SMEs) in India by leveraging the World Bank Enterprise Survey data for 2014 and 2022. Applying econometric techniques, it examines firm size’ influence on productivity and trade participation, providing insights for enhancing SME resilience and trade participation amid uncertainty.Design/methodology/approachThe econometric techniques focus on export participation, along with variables such as total exports, firm size, productivity, and capital intensity. It addresses crucial factors such as the direct import of intermediate goods and foreign ownership. Utilizing the Cobb-Douglas production function, the study estimates Total Factor Productivity, mitigating endogeneity and multicollinearity through a two-stage process. Besides, the study uses a case study of North Indian SMEs engaged in manufacturing activities and their adoption of mitigation strategies to combat unprecedented EPU.FindingsResults reveal that EPU-induced TSCV reduces exports, impacting employment and firm size. Increased productivity, driven by technological adoption, correlates with improved export performance. The study highlights the negative impact of TSCV on trade participation, particularly for smaller Indian firms. Moreover, SMEs implement cost-based, supplier-based, and inventory-based strategies more than technology-based and risk-based strategies.Practical implicationsPolicy recommendations include promoting increased imports and inward foreign direct investment to enhance small firms’ trade integration during economic uncertainty. Tailored support for smaller firms, considering their limited capacity, is crucial. Encouraging small firms to engage in international trade and adopting diverse SC mitigation strategies associated with policy uncertainty are vital considerations.Originality/valueThis study explores the impact of EPU-induced TSCV on Indian SMEs’ trade dynamics, offering nuanced insights for policymakers to enhance SME resilience amid uncertainty. The econometric analysis unveils patterns in export behavior, productivity, and factors influencing trade participation during economic uncertainty.

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Working capital and firm performance: role of COVID-19 disruption

Cited by 4 publications

References 113 publications

The Impact of Firm Risk and the COVID-19 Crisis on Working Capital Management Strategies: Evidence from a Market Affected by Economic Uncertainty

The Impact of Firm Risk and the COVID-19 Crisis on Working Capital Management Strategies: Evidence from a Market Affected by Economic Uncertainty

Role of Bank Credit and External Commercial Borrowings in Working Capital Financing: Evidence from Indian Manufacturing Firms

Assessing trade supply chain vulnerability and trade participation of SMEs in India: insights from a comprehensive analysis

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