Working Capital Management Policies in Indian Listed Firms: A State-Wise Analysis

Najib H. S Farhan, Faozi A. Almaqtari, Ebrahim Mohammed Al-Matari, Nabil Ahmed M. Senan, Waleed M. Alahdal and Saddam A. Hazaea
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Najib H. S Farhan: Department of Accounting, Faculty of Management Sciences, Ibb University, Ibb 40440, Yemen
Faozi A. Almaqtari: Department of Accounting, College of Commerce and Economics, Hodeidah University, Hodeidah 1814, Yemen
Ebrahim Mohammed Al-Matari: Department of Accounting, College of Business, Jouf University, Al-Jouf 75911, Saudi Arabia
Nabil Ahmed M. Senan: Department of Accounting, College of Business Administration, Prince Sattam Bin Abdul Aziz University, Al Kharj 11942, Saudi Arabia
Waleed M. Alahdal: Department of Accounting, Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, Kuala Nerus 21030, Malaysia
Saddam A. Hazaea: School of Accounting, Yunnan University of Finance and Economics, Kunming 650221, China

Sustainability, 2021, vol. 13, issue 8, 1-25

Abstract: The main aim of this paper is to evaluate the impact of working capital policies on firms’ profitability. The study uses a panel data set of 829 manufacturing firms for the period from 2011 to 2017. Data is extracted from Prowess IQ database. An empirical model is used for testing research hypotheses. The results show that all firms across Indian states follow conservative financing and investment policy. The conservative investment policy positively affects return on assets, whereas the conservative financing policy negatively affects return on assets and therefore firms’ financial sustainability. Regulators, policymakers, investors, and financial managers in Indian manufacturing companies are advised to follow a conservative investment and financing policy, which is effective and efficient in boosting firms’ profitability for attaining financial sustainability. Therefore, manufacturing firms should invest more in current assets, because they need to expand both inventories and trade credit to their customers. Moreover, financial managers are advised to favor a low level of debt in financing assets. Apart from previous literature, which was either descriptive or based on a small sample size, the present study makes a novel and significant contribution by bridging an existing gap through applying a panel fixed- and random-effect model for a large sample: 829 firms. Furthermore, the business environment in India is somewhat different from that of other countries around the globe, which makes investigating working capital policies in the Indian contexts an interesting endeavor.

Keywords: Indian firms; financing policy; investing policy; state-wise analysis (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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