Payable period and firm performance: the mediating role of relational capital

The purpose of this paper is to examine the performance effect of payable period management from a relational capital perspective. The study uses the Prowess database to collect secondary panel data on relational capital [measured by business group (BG) affiliation], payable period, and other firm-specific characteristics for 1,841 Indian manufacturing firms. Further, it employs panel data regression analyses to test the effect of payable period management on firm performance in light of relational capital. In contrast to the existing literature, this study has revealed that the company's financial performance suffers significantly due to the high payable period. Further, it has been observed that a longer payable period results from a greater reliance on relational capital (as measured by BG affiliation). Altogether, these results highlight that relational capital mediates the relationship between payable period and firm performance. The present study develops an objective understanding of the significance of payable period management. To the best of our knowledge, this is the first study that argues that the payable period is not uniform across firms, and it varies significantly based on their affiliation to BG.