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How does working capital management affect the profitability of Indian companies?

Nufazil Altaf (Department of Management Studies, Central University of Kashmir, Srinagar, India)
Farooq Ahmad Shah (Department of Central University of Kashmir, Srinagar, India)

Journal of Advances in Management Research

ISSN: 0972-7981

Article publication date: 13 March 2018

Issue publication date: 25 July 2018

2395

Abstract

Purpose

The purpose of this paper is to examine the relationship between working capital management (WCM) and firm profitability for a sample of 437 non-financial Indian companies.

Design/methodology/approach

The study is based on secondary financial data obtained from Capitaline database, pertaining to a period of ten years. This study employs two-step generalized method of moments (GMM) techniques to arrive at results.

Findings

The results of the study confirm the inverted U-shape relationship between WCM and firm profitability. In addition, the authors also found that the firms should complete its CCC on an average by 63 days.

Originality/value

Unlike prior studies that found a linear relationship between WCM and firm profitability. This study provides newer evidence for an inverted U-shaped relation between investment in working capital and firm profitability in India. In addition, this study uses GMM to control the potential problems of endogeneity.

Keywords

Acknowledgements

The current paper is a part of author’s doctoral thesis. The authors are highly thankful to the editor of the Journal of Advances in Management Research and the two anonymous referees for constructive comments and suggestions on the earlier version; incorporating them has improved the paper quite substantially. The usual disclaimer applies.

Citation

Altaf, N. and Shah, F.A. (2018), "How does working capital management affect the profitability of Indian companies?", Journal of Advances in Management Research, Vol. 15 No. 3, pp. 347-366. https://doi.org/10.1108/JAMR-06-2017-0076

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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