Cash conversion cycle and corporate performance: Global evidence

The purpose of this study is to take a stock of what has been studied on working capital management (WCM) so far and ascertain the factors which are more likely to be impacted by poor WCM. Moreover, it aims to spell out the areas for further research on WCM so that the body of knowledge can be expanded. A systematic literature review of the research works on WCM has been performed using Google Scholar. Articles with citations of 50 and above as of June 05, 2018 are considered for the detailed citation based analysis. Further, classification of such articles has been done on the basis of common themes followed by a thorough content analysis. The citation based analysis suggests that there is a growing popularity of studies related to WCM in recent times. However, majority of the impactful studies are published in relatively lower category journals. This further intrigues us to explore the content of such studies. Based on the content, the studies are classified under five different themes. It is found that majority of the highly cited articles have examined the relation between the WCM and profitability of the firms. Moreover, repetitive uses of few proxies in such studies have also been identified. This finding most probably explains the reason behind so many highly cited articles getting published in relatively lower category journals. In view of this, this study tries to explore further scope of research on WCM and lists down potential research questions for the future researches. Firstly, it provides an idea about the most cited area of researches related to WCM and the recent growth of studies in this domain. Academicians can decide upon their future area of research based on the findings related to the proxies and outcome from these studies. Secondly, it shows the most popular avenue of publishing the articles related to WCM which will certainly motivate the researchers to pursue such study. It has been found from the analysis that majority of the impactful articles are published in lower category journals. Therefore, this study identifies the reason behind the same and lists down some innovative research questions to provide some future research directions. Thirdly, the finance managers can use this finding to identify the relevant consequences of poor WCM. Finally, it can serve as a reference point for all future ideas related to WCM. The paper classifies the present literature on WCM into five major themes and performs a content analysis of the same. This is essential as the content analysis highlights different proxies used as inputs which effectively drive efficient WCM. Moreover, the study also identifies the huge scope of future research in the domain of WCM. According to our limited knowledge, such extensive literature review on WCM is rare.

Review of literature on working capital management and future research agenda

Changes in understanding and interpretation of decision-making processes have shed more light on complex interplay given the different settings, and different actors. The limitations in human decision-making and their significance and long-term implications on organizational management or policy making inspired a large body of evidence and research. Exploration of decision-making processes spans over decades, and is closely connected to the role of power; the amount of power in organizations is usually joined by the knowledge and prior experience, which together play a significant role in decision-making process, as well in selection of candidates for the job. However, there is an evident void concerning publications on decision-making processes in academic institutions, and it rapidly becomes the focus of interest due to a specific opposition contained in its core; positions of high level administrators are held by the university professors with no mandatory previous experience and/or knowledge in organisational management. JEL Classification: G30, G39

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The Impact of Working Capital Management on Profitability of Croatian Software Companies

This paper aims to investigate the impact of the efficiency of working capital management (WCM) on the performance of a sample of Indian companies and explore how the nature of the firm's business influences the significance and direction of this impact.,The data for this study were collected for the period of 2012–2018 for 414 non-financial firms listed on the Bombay Stock exchange. Fixed-effect regression models were run by taking Tobin's Q and return on equity (ROE) as dependent variables, and net trade cycle (NTC) and its components as explanatory variables in the presence of liquidity, leverage, size, age and growth as control variables. Sample firms were segregated into manufacturing, trading and service groups, and regression models were used for all the groups to understand the effect of the nature of a firm's business.,WCM efficiency has a significant impact on the performance of the sample firms. Non-financial Indian firms deliver better financial performance by maintaining lower NTC. Like NTC, its components also impact firm value and profitability. The results report that the significance of the relationship varies depending upon the nature of the firm's business.,The previous research studies had not used a sample of large number of Indian firms. Unlike previous studies, this study reports the influence of the nature of business on the relationship between WCM and firm performance. Further, this paper also examines how the individual components of working capital influence the performance of Indian firms.

Working capital management, firm performance and nature of business: An empirical evidence from India

Efficient management of working capital is a fundamental part of the overall corporate strategy in creating the shareholders’ value. Today the management of Working Capital is one of the most important and challenging aspect of the overall financial management. Optimization of working capital balance means minimizing the working capital requirements and realizing maximum possible revenues. Efficient WCM increases firms’ free cash flow, which in turn increases the firms’ growth opportunities and return to shareholders. Even though firms traditionally are focused on long term capital budgeting and capital structure, the recent trend is that many companies across different industries focus on WCM efficiency.The present study analyses the efficiency of the working capital management and its components i.e. inventory amount, cash and bank balances and various current liabilities. The study attempts to determine the efficiency and effectiveness of management in each segment of working capital. Since the net concept of working capital has been widely taken in the present study, management of both current assets and current liabilities are also critically reviewed in its due course. A sample list of 30 Bombay Stock Exchange (BSE) listed cement companies, located at different regions of India, is selected for the study. This study is mainly confined to selected Indian cement companies using CMIE Prowess 4.0 database software and the information relating to nature of company, size, age, state and region, company background, value of total assets and annual financial statements of sample companies for the period 2006 to 2015 have been obtained from the same. The help of statistical software, SPSS 21.0 version is taken for the various statistical analyses required for this study. An attempt has been made to investigate the existence of relationship between the working capital management and the profitability, average receivable period, inventory conversion period, average payment period and the cash conversion cycle which expresses the efficiency of working capital. It is found that there exists a negative relationship between profitability and number of days of accounts payables & number of days of inventory, but a positive relationship between profitability and number of days of accounts receivables. The WCM and profitability show a positive relationship (as measured by cash conversion cycle,) as against the theoretical foundation. The present analysis of the study reveals that shortening of cash conversion cycle negatively affects the profitability of the firm.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2932766_code2140786.pdf?abstractid=2914312&mirid=1

Akalya S

Papers

An analysis of working capital management