Benchmarking the efficiency model for working capital management: data envelopment analysis approach

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Himanshu Seth ◽  
Saurabh Chadha ◽  
Satyendra Sharma
Keyword(s):  
Data Envelopment Analysis ◽  
Manufacturing Sector ◽  
Fixed Effect Model ◽  
Manufacturing Industries ◽  
Data Envelopment ◽  
Capital Management ◽  
Working Capital ◽  
Firm Level ◽  
Working Capital Management ◽  
Content Type

PurposeThis 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/approachWCM 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.FindingsFirstly, 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/implicationsFirst, 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 implicationsAn 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/valueThis 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.

Does corporate governance influence the efficiency of working capital management of listed firms

2016 ◽  
Vol 7 (4) ◽  
pp. 482-496 ◽  
Author(s):  
Vera Fiador
Keyword(s):  
Corporate Governance ◽  
Stock Exchange ◽  
Capital Management ◽  
Working Capital ◽  
Firm Level ◽  
Working Capital Management ◽  
Content Type ◽  
Growth And Survival ◽  
Listed Firms ◽  
Cash Conversion Cycle

Purpose The purpose of this paper is to explore the relevance of corporate governance in the quest to attain organizational efficiency in the working capital management of listed firms. There is a consensus that efficiency of working capital management is vital for firm’s growth and survival, yet another consensus is the role of corporate governance in limiting managerial self-serving behavior and ultimately improving firm’s efficiency. If the foregoing views hold, then the empirical question “Is corporate governance important for firm-level working capital efficiency?” becomes important. Design/methodology/approach Panel data on 13 non-financial firms listed on the Ghana Stock Exchange were employed in a pooled OLS regression. Findings The results of the study indicate mostly a negative effect of internal governance mechanisms on the cash conversion cycle, the inventory, receivables’ periods and payables’ periods, implying that governance structures do affect the efficiency of working capital management. Firm characteristics like age, size and profitability also emerged as relevant influences on the efficiency of working capital management. Research limitations/implications Data for the study cut across several sectors thus limiting the specificity with which findings can be applied. Originality/value These findings have implications for board composition in the quest for firm-level efficiency while raising the need for more industry-specific enquiries.

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.

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.

How does working capital management affect the profitability of Vietnamese small- and medium-sized enterprises?

2017 ◽  
Vol 24 (1) ◽  
pp. 2-11 ◽  
Author(s):  
Hien Tran ◽  
Malcolm Abbott ◽  
Chee Jin Yap
Keyword(s):  
Global Economy ◽  
Capital Investment ◽  
Raw Materials ◽  
Optimal Level ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Accounts Receivable ◽  
Accounts Payable

Purpose Well-designed and implemented working capital management (WCM) will encourage positive returns for a business and establish the firm’s value, while ineffective management will undoubtedly lead to failure of the enterprise. The paper aims to discuss these issues. Design/methodology/approach In business, fixed capital and working capital are the two main forms of capital used. The current assets used in the business as working capital for day-to-day operations include raw materials, work in progress, finished goods, bills receivable, cash and bank balance. This paper analyses the relationship between WCM and profitability in Vietnamese small- and medium-sized enterprises (SMEs) after integration into the global economy. Findings The results suggest that SME owner-managers can increase their firm’s profitability by reducing the number of days of accounts receivable, accounts inventories and accounts payable to an optimal minimum. In addition, a robustness check of this study indicates that high profitability will be achieved, with an optimal level of working capital investment in accounts inventories, accounts receivable and accounts payable. Originality/value No work of this sort has been applied to Vietnamese circumstances. It is also rare in SE Asia more generally.

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.

Current assets management of small enterprises

2015 ◽  
Vol 42 (4) ◽  
pp. 549-560 ◽  
Author(s):  
Haitham Nobanee ◽  
Jaya Abraham
Keyword(s):  
New York ◽  
Small Firms ◽  
Stock Exchange ◽  
Dynamic Panel Data ◽  
Method Of Moment ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Trade Cycle ◽  
Content Type

Purpose – The purpose of this paper is to investigate the relationship between a firm’s net trade cycle, its size and liquidity. Design/methodology/approach – The relation between the firm’s net trade cycle and its liquidity is examined using Generalized Method of Moment Dynamic Panel-Data System Estimation with Robust Standard Errors for a sample of 5,802 US non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and Over the Counter Market for the period 1990-2004 (87,030 firm-year observations). The analysis is applied at the levels of the full sample and divisions of the sample by size. Findings – The results show negative and significant relationship between net trade cycle, as a comprehensive measure of efficiency in working capital management, and liquidity for small firms. Originality/value – Most of the existing literature focusses on the large firm’s experience of working capital management. Small firms generally face liquidity problems and have limited access to external capital, and studies on their efficiency in working capital management are scant. Thus the present study is useful in understanding the relation between the firm’s net trade cycle and liquidity of small firms.

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