Author
Listed:
- Punam Prasad
- Narayanasamy Sivasankaran
- Ankur Shukla
Abstract
Purpose - The purpose of this paper is to assess the impact of deviation from the target investment in working capital (WC) (measured by net trade cycle (NTC)) on the profitability (measured by gross operating income (GOI) and net operating income (NOI)) of the listed non-financial Indian firms. Design/methodology/approach - The study is based on the data collected on NTC, GOI, NOI and other variables pertaining to 242 listed non-financial Indian firms that form part of the Bombay Stock exchange 500 Index for the period 2012–2017 (1,452 firm-year observations). Following Banos-Caballeroet al.(2010), the authors use a firm fixed effect regression as the benchmark regression for finding out the determinants of NTC of the sample firms. Furthermore, this study explores the impact of deviation (above and below target) from the target investments in WC on the firm profitability (GOI and NOI) employing fixed effect regression. Findings - The result of this study reveals that Indian firms maintain a target NTC and try to converge in case of any deviations to it. Furthermore, the profitability of the sample firms was observed to be influenced by the deviation from the target NTC irrespective of whether the deviation was above or below the target investment level in WC. Practical implications - This study highlights the importance of good WC management for firms due to the negative impact of the over- and under-investments in WC and contributes to the existing body of knowledge by suggesting that managers should keep close to the target WC and not deviate from this in order to maximize the firms’ profitability. Originality/value - To the best of the knowledge of the researchers, this is perhaps the first study to examine the impact of firms’ deviation from their target investment in WC on the profitability for non-financial firms listed and operating in India.
Suggested Citation
Punam Prasad & Narayanasamy Sivasankaran & Ankur Shukla, 2019.
"Impact of deviation from target working capital on firm profitability: evidence from India,"
International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 68(8), pages 1510-1527, May.
Handle:
RePEc:eme:ijppmp:ijppm-11-2018-0407
DOI: 10.1108/IJPPM-11-2018-0407
Download full text from publisher
As the access to this document is restricted, you may want to search for a different version of it.
Corrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:ijppmp:ijppm-11-2018-0407. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
We have no bibliographic references for this item. You can help adding them by using this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .
Please note that corrections may take a couple of weeks to filter through
the various RePEc services.