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

Author

Listed:
  • Nufazil Altaf
  • Farooq Ahmad Shah

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.

Suggested Citation

  • Nufazil Altaf & Farooq Ahmad Shah, 2018. "How does working capital management affect the profitability of Indian companies?," Journal of Advances in Management Research, Emerald Group Publishing Limited, vol. 15(3), pages 347-366, March.
    • Handle: RePEc:eme:jamrpp:jamr-06-2017-0076
    DOI: 10.1108/JAMR-06-2017-0076
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    Cited by:

    1. Ardi Ahmeti & Alban Elshani, 2024. "The Effect of Profitability as a Mediator in the Relationship between Working Capital Management and the Sustainable Growth of Small and Medium-Sized Enterprises in Selected Western Balkan Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 47-61.
    2. Deari Fitim & Palomba Giulio, 2024. "Does the Cash Conversion Cycle Affect Firm Profitability? Some Empirical Evidence from Listed Firms in North Macedonia," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 63-77.

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