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Bayesian analysis of working capital management on corporate profitability: evidence from India

Author

Listed:
  • Arvind Shrivastava
  • Nitin Kumar
  • Purnendu Kumar

Abstract

Purpose - Decisions pertaining to working capital management have pivotal role for firms’ short-term financial decisions. The purpose of this paper is to examine impact of working capital on profitability for Indian corporate entities. Design/methodology/approach - Both classical panel analysis and Bayesian techniques have been employed that provides opportunity not only to perform comparative analysis but also allows flexibility in prior distribution assumptions. Findings - It is found that longer cash conversion period has detrimental influence on profitability. Financial soundness indicators are playing significant role in determining firm profitability. Larger firms seem to be more profitable and significant as per Bayesian approach. Bayesian approach has led to considerable gain in estimation fit. Practical implications - Observing the highly skewed distribution of dependent variable, Multivariate Studentt-distribution has been considered along with normal distribution to model stochastic term. Accordingly, Bayesian methodology is applied. Originality/value - Analysis of working capital for firms has been performed in Indian context. Application of Bayesian methodology is performed on balanced panel spanning from 2003 to 2012. As per author’s knowledge, this is the first study which applies Bayesian approach employing panel data for the analysis of working capital management for Indian firms.

Suggested Citation

  • Arvind Shrivastava & Nitin Kumar & Purnendu Kumar, 2017. "Bayesian analysis of working capital management on corporate profitability: evidence from India," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(4), pages 568-584, September.
    • Handle: RePEc:eme:jespps:jes-11-2015-0207
    DOI: 10.1108/JES-11-2015-0207
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    Citations

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    Cited by:

    1. Sorin Gabriel Anton & Anca Elena Afloarei Nucu, 2020. "The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms," JRFM, MDPI, vol. 14(1), pages 1-14, December.
    2. 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.
    3. Minhas Akbar & Ahsan Akbar & Muhammad Umar Draz, 2021. "Global Financial Crisis, Working Capital Management, and Firm Performance: Evidence From an Islamic Market Index," SAGE Open, , vol. 11(2), pages 21582440211, May.
    4. Hanvedes Daovisan & H. L. Shen, 2020. "Does Working Capital Affect Family Firms’ Decision-Making in Laos? Evidence from a Two-Wave Cross-Lagged Approach," Sustainability, MDPI, vol. 12(7), pages 1-16, March.
    5. SUNTRARUK Phassawan, 2023. "The Mediating Effect Of Profitability On The Relationship Between Working Capital Management And Sustainable Growth," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 18(1), pages 314-327, April.
    6. Jacek Jaworski & Leszek Czerwonka, 2021. "Meta-study on the relationship between profitability and liquidity of enterprises in macroeconomic and institutional environment," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(2), pages 233-246, June.

    More about this item

    Keywords

    Panel data; Working capital; Bayesian econometrics; C11; C23; G3;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G3 - Financial Economics - - Corporate Finance and Governance

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