Working capital management and corporate performance: evidence from a study of Indian firms

Pankaj K. Agarwal and Sunil Kumar Varma

International Journal of Indian Culture and Business Management, 2013, vol. 7, issue 4, 552-571

Abstract: Working capital is the firm's circulating funds required for meeting day-to-day operations. Effective management of working capital is therefore very critical to a firm's financial health. The challenge of working capital management is to strike a balance between the liquidity and profitability. Therefore, it follows, that precise evaluation of working capital performance of various companies is extremely important. For, there is a need to develop and regularly update quantitative benchmarks for effective management of working capital both at firm and industry level. Towards this end, this paper studies 366 non-financial Indian corporates, chosen from a widely followed broad-based stock index BSE-500, over a three-year period, from 2007 to 2010, to assess their working capital performance. In addition, the study finds significant relationship between working capital management and firm profitability. The methodology followed is that of CFO Europe (1997), Anand and Gupta (2003) and Anand and Malhotra (2007).

Keywords: working capital management; current assets; debtors; operating cycle; quantitative benchmarks; firm profitability; firm size; India; firm performance. (search for similar items in EconPapers)
Date: 2013
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