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

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Himanshu Seth ◽  
Saurabh Chadha ◽  
Satyendra Kumar Sharma ◽  
Namita Ruparel
Keyword(s):  
Direct Effect ◽  
Structural Equation ◽  
Manufacturing Firms ◽  
Performance Model ◽  
Equation Modeling ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Combining Data

PurposeThis study develops an integrated approach combining data envelopment analysis (DEA) and structural equation modeling (SEM) for estimating the working capital management (WCM) efficiency and evaluating the effects of diverse exogenous variables on the WCM efficiency and firms' performance.Design/methodology/approachDEA is applied for deriving WCM efficiency for 212 Indian manufacturing firms over a period from 2008 to 2019. Also, the effect of human capital (HC), structural capital (SC), cost of external financing (CEF), interest coverage (IC), leverage (LEV), net fixed asset ratio (NFA), asset turnover ratio (ATR) and productivity (PRD) on the WCM efficiency and firms' performance is examined using SEM.FindingsThe average mean efficiency scores ranging from 0.623 to 0.654 highlight the firms operating at around 60% of WCM efficiency only, which is a major concern for Indian manufacturing firms. Further, IC, LEV, NFA, ATR revealed direct effect on the WCM efficiency as well as indirect effect on firms' performance, whereas CEF had only a direct effect on WCM efficiency. HC, SC and PRD had no effects on WCM efficiency and firms' performance.Practical implicationsThe findings offer vital insights in guiding policy decisions for Indian manufacturing firms.Originality/valueThis study is the first to identify the endogenous nature of the relationship of HC, SC, CEF, IC altogether with firms' performance, compounded by the WCM efficiency, by applying a comprehensive methodology of DEA and SEM and provides an efficiency performance model for better decision-making.

Financial constraints and optimal working capital – evidence from an emerging market

2018 ◽  
Vol 14 (1) ◽  
pp. 37-53 ◽  
Author(s):  
Gaurav S. Chauhan ◽  
Pradip Banerjee
Keyword(s):  
Financial Constraints ◽  
Emerging Market ◽  
Manufacturing Firms ◽  
Capital Management ◽  
Working Capital ◽  
Partial Adjustment ◽  
Working Capital Management ◽  
Content Type ◽  
Cash Conversion Cycle ◽  
Systematic Feature

Purpose The purpose of this paper is to investigate the existence of an optimal or target level of working capital for the Indian manufacturing firms, and whether firms intensely follow the target or not. Design/methodology/approach The paper uses cash conversion cycle as a measure of net working capital and employs partial-adjustment dynamic panel models to test its target-following behavior. Findings The empirical results show that there is no evidence of systematic target-following behavior of working capital for the Indian manufacturing firms. The results hold true even after dividing the sample into four groups depending on the sign and magnitude of deviation. The results further show that lack of target-following tendency is not quite influenced by varying firm-specific characteristics and, therefore, seems to be a systematic feature across firms in India. Research limitations/implications Scarcity of such working capital management studies across emerging economies, facing several financial constraints, limits the comparison of findings. Future studies should be conducted to confirm the results. Practical implications The findings imply that even though an optimal working capital might exist, emerging market firms may not be able to actively pursue it on account of several financial constraints and managerial considerations. Originality/value The study contributes to the scant existing literature on the target-following behavior of working capital management in the Indian manufacturing firms, representing a typical emerging market facing several financial constraints.

Working capital management and firm performance in China

2019 ◽  
Vol 27 (4) ◽  
pp. 546-562 ◽  
Author(s):  
Ting Ren ◽  
Nan Liu ◽  
Hongyan Yang ◽  
Youzhi Xiao ◽  
Yijun Hu
Keyword(s):  
Firm Performance ◽  
Negative Relationship ◽  
Manufacturing Firms ◽  
Chinese Economy ◽  
Chinese Government ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Ownership Structures

Purpose The purpose of this paper is to examine the relationship between working capital management (WCM) and firm performance in the context of the Chinese economy. Specifically, it investigates the effects of ownership structures as an internal factor and of institutional environments (IE) as an external factor shaping this relationship. Design/methodology/approach The study applies two-way fixed effect regression models to a sample of Chinese listed manufacturing firms for the period of 2010 to 2017. WCM is measured by cash conversion cycles (CCC); profitability is measured by core profit ratios; ownership structures are classified based on state-owned enterprises (SOEs) and non-SOEs; and IEs are measured from dimensions of factor markets (FM) and legal systems (LS). Findings First, the results show a negative relationship between CCC and firm performance. Second, the negative relationship between CCC and profitability is significant for non-SOEs but not for SOEs. Third, both the FM and LS strengthen the negative association between CCC and profitability. Fourth, the moderating effect of FMs and LSs is evident for non-SOEs only. The results hold when using alternative measures of WCM and profitability and while controlling for additional variables. Originality/value The current study shows that while WCM has a significant effect on the profitability of Chinese firms, such an effect greatly depends on the ownership structures and IE involved. The results thus offer important implications in helping the Chinese government create better IEs and in allowing manufacturing firms to improve upon their WCM practices.

Assessing working capital management efficiency of Indian manufacturing exporters

2020 ◽  
Vol 46 (8) ◽  
pp. 1061-1079 ◽  
Author(s):  
Himanshu Seth ◽  
Saurabh Chadha ◽  
Namita Ruparel ◽  
Puneet Kumar Arora ◽  
Satyendra Kumar Sharma
Keyword(s):  
Fixed Effects ◽  
Manufacturing Sector ◽  
Manufacturing Firms ◽  
Capital Management ◽  
Working Capital ◽  
Exogenous Variables ◽  
Working Capital Management ◽  
Content Type ◽  
Cash Conversion Cycle ◽  
Time Period

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.

Working capital management and profitability of listed manufacturing firms in Ghana

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kofi Amponsah-Kwatiah ◽  
Michael Asiamah
Keyword(s):  
Inventory Management ◽  
Quantitative Research ◽  
Manufacturing Firms ◽  
Research Approach ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Positive Effects ◽  
Cash Conversion Cycle

PurposeThis study examines the effect of working capital management on profitability of listed manufacturing firms in Ghana.Design/methodology/approachThe study employs a quantitative research approach within the causal research design using a balance panel of 20 manufacturing listed firms from 2015 to 2019.FindingsThe study reveals that inventory management, account receivables, account payables, cash conversion cycle, current asset, current ratio and firm size have positive effects on return on assets (ROA) and return on return on equity(ROE) whilst leverage affects them negatively.Research limitations/implicationsThe study only covers 20 manufacturing firms generally due to data unavailability. However, the outcome has useful information for manufacturing firms.Practical implicationsThe study brings to light effective ways of improving the profitability of manufacturing firms through policies.Social implicationsThe findings are beneficial to manufacturing firms and countries for the purpose of improving performance of firms and welfare of the people through direct and indirect chain effects of increasing investments, remunerations and scales of production.Originality/valueThis study adds insights into the existing literature on working capital management namely methodology, effects of components on profitability of manufacturing firms and socioeconomic implications- evidence from Ghana.

Dependence, trust, and 3PL integration: an empirical study in China

2017 ◽  
Vol 47 (9) ◽  
pp. 927-948 ◽  
Author(s):  
Baofeng Huo ◽  
Chen Liu ◽  
Haozhe Chen ◽  
Xiande Zhao
Keyword(s):  
Financial Performance ◽  
Information Sharing ◽  
Structural Equation ◽  
Mainland China ◽  
Performance Model ◽  
Equation Modeling ◽  
Content Type ◽  
Key Dimensions ◽  
Process Coordination ◽  
The Relationship

Purpose The purpose of this paper is to investigate relationships among dependence, trust, and integration in the Chinese 3PL context. 3PL integration is manifested in two key dimensions: information sharing and process coordination. Design/methodology/approach This study develops a dependence-trust-3PL integration-performance model and tests it using structural equation modeling with survey data collected from 361 companies in the Greater China area (i.e. mainland China, Hong Kong, and Taiwan). Findings The results show that switch dependence is indirectly related to information sharing and process coordination through goodwill trust, while goal dependence has direct links with both integrative behaviors. The authors also found that only goodwill trust mediates the relationship between dependence and integrative behaviors, while ability trust does not mediate any relationships. Finally, the analysis validated the direct link between process coordination and financial performance, but did not find a significant link between information sharing and financial performance. Originality/value Different from most previous studies on similar topics, this study examines the impacts of different types of dependence and trust on different 3PL integration dimensions. As a result, the findings are more specific and have direct relevance to effective 3PL relationship management in China.

Exploring the antecedents and consequences of organizational democracy

2018 ◽  
Vol 30 (1) ◽  
pp. 74-96 ◽  
Author(s):  
Ali Safari ◽  
Reza Salehzadeh ◽  
Elham Ghaziasgar
Keyword(s):  
Direct Effect ◽  
Structural Equation ◽  
Organizational Design ◽  
Equation Modeling ◽  
Organizational Democracy ◽  
Statistical Population ◽  
Content Type ◽  
New Model ◽  
Antecedents And Consequences ◽  
Significant Direct Effect

Purpose Organizational democracy is the new model of organizational design for a Democratic Age, and out of this new model grows a freedom-centered and healthy climate. Democratic management is a key to greater organization success and a necessity to gain higher levels of performance and innovation. The purpose of this paper is to explore the antecedents and consequences of organizational democracy in an Iranian context. Design/methodology/approach Statistical population includes the employees of the Gas Company of Isfahan Province. For data analysis, 263 accurate completed questionnaires are used. Structural equation modeling is applied to investigate the relationship between the research variables. Findings The findings showed that some types of organizational culture (i.e. self-criticism, team, and participatory culture) (β=0.33); and some dimensions of organizational structure (i.e. decentralization, flat hierarchy, and less formalization) (β=0.55) as antecedent variables have a significant direct effect on organizational democracy. Also, organizational democracy has a significant direct effect on human resources outcomes consist of organizational commitment, self-efficacy, and improving work relationships (β=0.64); and organizational outcomes consist of organizational learning and organizational agility (β=0.96). Originality/value Despite years of encouragement from consultants and theorists, managers have generally shown little interest toward democratic process as a system of decision making and management in organizations. This study proposes a comprehensive model for identifying the antecedents and consequences of organizational democracy. Most studies in this field are theoretical rather than empirical. But, in this research, the proposed relationships are examined empirically.

scholarly journals Efficiency of Working Capital Management and Profitability: Evidence from Manufacturing Firms of Nepal

2019 ◽  
Vol 22 (1) ◽  
pp. 21-34
Author(s):  
Pitambar Lamichhane
Keyword(s):  
Comparative Research ◽  
Manufacturing Firms ◽  
Fiscal Year ◽  
Regression Result ◽  
Capital Management ◽  
Working Capital ◽  
Current Ratio ◽  
Working Capital Management ◽  
Explanatory Variables ◽  
Dependent Variables

This paper analyzes efficiency of working capital management (EWCM) and its influence on profitability of manufacturing firms in Nepal for the fiscal year 2005/06 to 2017/18 using descriptive and causal comparative research design. Net trade cycle (NTC) is used to measure EWCM. Profitability on assets (PA) and profitability on sales (PS) are dependent variables of this study. The EWCM related variables such as Net trading cycle (NTC), current ratio (CR) and debt to assets ratio (DR) are considered as explanatory variables. Result of this paper reveals both profitability on assets and profitability on sales are inversely related with NTC which implies that lower NTC increases profitability of manufacturing firms in Nepal. Further, regression result of this paper confirms that debt to assets ratio has negative and statistically significant effect on profitability on total assets and profitability on sales. The finding of this paper concludes that less uses of debt increases the profitability of manufacturing firms in Nepal.

A systematic literature review on working capital management – an identification of new avenues

2019 ◽  
Vol 11 (3) ◽  
pp. 352-366 ◽  
Author(s):  
Umar Nawaz Kayani ◽  
Tracy-Anne De Silva ◽  
Christopher Gan
Keyword(s):  
Literature Review ◽  
Systematic Literature Review ◽  
Empirical Relationship ◽  
Deep Understanding ◽  
Future Research ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Behavioural Aspects

Purpose This paper aims to provide a review of the existing literature available on working capital (WC) and working capital management (WCM). Design/methodology/approach A systematic literature review (SLR) methodology is used to review 187 articles selected from referred journals, books and international conferences for the period 1980-2017. Findings This comprehensive review reveals that much of the focus in the existing literature is paid on investigating the empirical relationship between WCM and firm performance. Furthermore, the attention has been paid towards studying the WC practices. The behavioural aspects, qualitative studies, survey studies and systematic theory development have been ignored in most of the prior studies. These areas have a broader scope for future research. Research limitations/implications This study is based on literature review and theoretical in nature. Therefore, it does not have any empirical results. Practical implications So far, a limited literature review studies have been conducted in WCM perspective. This review provides various emerging trends, which may be considered in future research for providing a deep understanding of WCM. Originality/value This is the first time a detailed review of WCM literature has been conducted by using SLR for the period of 1980-2017. This review will be useful for researchers, business policymaker, finance professionals and all other having direct or indirect concerns with WCM study.

scholarly journals Cash Conversion Cycle and Profitability, Evidence from Jordan

2019 ◽  
Vol 11 (2) ◽  
pp. 81
Author(s):  
Manar Moffadi Al-Mohareb
Keyword(s):  
Stock Exchange ◽  
Theoretical Aspect ◽  
Practical Aspect ◽  
Manufacturing Firms ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Amman Stock Exchange ◽  
The Impact

This study investigates the impact of working capital management and its components on profitability as a practical aspect, and how is compatible with the theoretical aspect. Besides, it examines other financial factors that may affect profitability by using a sample of Jordanian manufacturing firms listed in the Amman Stock Exchange for the period (2016-2018). Theoretically, manufacturing firms that have been studied have current assets over half of their total assets. Therefore, the working capital management role will be clearer on firm profitability.Practically, the results indicate that there is a significant relationship between the cash conversion cycle, which is considered as a proxy of working capital management, and profitability of the manufacturing firms. This provides an opportunity to create value for shareholders by decreasing receivable accounts and inventory, enhancing the profitability of the firms and reducing the collection period and by adopting effective credit policy.

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