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Effect of Working Capital Management on Firm Profitability

Author

Listed:
  • A.K. Sharma

    (A.K. Sharma is Associate Professor at the Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee (Uttrakhand), India. E-mail: anilfdm@iitr.ernet.in)

  • Satish Kumar

    (Satish Kumar (Corresponding Author) is a Research Scholar at the Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee (Uttrakhand), India. E-mail: satisddm@iitr.ernet.in)

Abstract

The main aim of this article is to examine the effect of working capital on profitability of Indian firms. We collected data about a sample of 263 non-financial BSE 500 firms listed at the Bombay Stock (BSE) from 2000 to 2008 and evaluated the data using OLS multiple regression. The findings of our study significantly depart from the various international studies conducted in different markets. The results reveal that working capital management and profitability is positively correlated in Indian companies. The study further reveals that inventory of number of days and number of days accounts payable are negatively correlated with a firm’s profitability, whereas number of days accounts receivables and cash conversion period exhibit a positive relationship with corporate profitability. The present study contributes to the existing literature by examining the effect of working capital management on profitability in the context of an emerging capital market such as India.

Suggested Citation

  • A.K. Sharma & Satish Kumar, 2011. "Effect of Working Capital Management on Firm Profitability," Global Business Review, International Management Institute, vol. 12(1), pages 159-173, February.
    • Handle: RePEc:sae:globus:v:12:y:2011:i:1:p:159-173
    DOI: 10.1177/097215091001200110
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    References listed on IDEAS

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