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Impact of Working Capital Management Policies on Corporate Performance—An Empirical Study

Author

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  • Sushma Vishnani

    (Sushma Vishnani, FCA, Finance Faculty, Jaipuria Institute of Management, Vineet Khand, Gomtinagar, Lucknow-10. E-mail: sushma@jiml.ac.in)

  • Bhupesh Kr. Shah

    (Bhupesh Kr. Shah, FCA, Partner, S. Vishnani & Co., Chartered Accountants, 11/3, Flat No. A, First Floor, Dalibagh (opp. Narmada Bhawan), Lucknow-1. E-mail: bhu790@yahoo.com)

Abstract

It is felt that there is the need to study the role of working capital management policies on profitability of a company. Conventionally, it has been seen that if a company desires to take a greater risk for bigger profits and losses, it reduces the size of its working capital in relation to its sales. If it is interested in improving its liquidity, it increases the level of its working capital. However, this policy is likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company should strike a balance between liquidity and profitability. In this paper an effort has been made to make an empirical study of Indian Consumer Electronics Industry for assessing the impact of working capital policies & practices on profitability during the period 1994–95 to 2004–05. The impact of working capital policies on profitability has been examined by computing coefficient of correlation and regression analysis between profitability ratio and some key working capital policy indicator ratios.

Suggested Citation

  • Sushma Vishnani & Bhupesh Kr. Shah, 2007. "Impact of Working Capital Management Policies on Corporate Performance—An Empirical Study," Global Business Review, International Management Institute, vol. 8(2), pages 267-281, December.
    • Handle: RePEc:sae:globus:v:8:y:2007:i:2:p:267-281
    DOI: 10.1177/097215090700800206
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    References listed on IDEAS

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    1. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    2. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
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    Cited by:

    1. Sylvester Ikechukwu Ejike & Nancy C. Agha, 2018. "Impact of Operating Liquidity on Profitability of Pharmaceutical Firms in Nigeria," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(3), pages 73-82, July.
    2. Thapa, Priya Darshini Pun, 2013. "How does profitability get affected by working capital management in food and beverages industry?," MPRA Paper 50926, University Library of Munich, Germany.
    3. A.Y. Salman & Oyetayo O. Folajin & A.O. Oriowo, 2014. "Working Capital Management and Profitability: A Study of Selected listed manufacturing Companies in Nigerian Stock Exchange," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(8), pages 287-295, August.
    4. M. O. Yusuf & Christopher I. Nwufo & Emmanuel Ib Chima, 2019. "Optimum Synergy between Liquidity and Profitability Management of Quoted Banks: The Nigerian Perspective," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(2), pages 138-148, April.
    5. Ashfaq Ahmad & Sadia Bano, 2015. "Working Capital Management Matters Profitability of Textile Sector: With GLS Model," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(11), pages 543-549, November.
    6. Julia Koralun-Bereźnicka, 2011. "Country and industry factors as determinants of corporate financial liquidity in the European Union countries," Bank i Kredyt, Narodowy Bank Polski, vol. 42(1), pages 19-48.
    7. Mohsin Siraj & Muhammad Mubeen & Salman Sarwat, 2019. "Working capital management and firm performance: evidence from non-financial firms in Pakistan," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 9(2), pages 27-37, February.
    8. Hamza Aslam Butt, 2014. "Impact of Working Capital Management on Profitability of Chemical Sector of Pakistan," International Journal of Social Sciences and Management Studies (IJSSMS), The Economics and Social Development Organization (TESDO), vol. 1(2), pages 67-79, June.
    9. Shahid Ali & Muhammad Mohsin Khan & Muhammad Nouman, 2011. "An Investigation into Efficiency of Working Capital by Chemical Firms in Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 3(2), pages 198-217, October.
    10. Brandenburg, Marcus, 2016. "Supply chain efficiency, value creation and the economic crisis – An empirical assessment of the European automotive industry 2002–2010," International Journal of Production Economics, Elsevier, vol. 171(P3), pages 321-335.

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