Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India
The long-term financial health of a corporation is assessed by its capacity to meet short-term financial commitments. Optimum working capital that maximizes enterprise value varies across companies. The purpose of this paper is to investigate whether Indian manufacturing enterprises’ firm values are...
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LLC "CPC "Business Perspectives"
2023-09-01
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| Series: | Investment Management & Financial Innovations |
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| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18729/IMFI_2023_03_R_Gupta.pdf |
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| author | Rupali Gupta Sunita Jatav Gagan Prakash |
| author_facet | Rupali Gupta Sunita Jatav Gagan Prakash |
| author_sort | Rupali Gupta |
| collection | DOAJ |
| description | The long-term financial health of a corporation is assessed by its capacity to meet short-term financial commitments. Optimum working capital that maximizes enterprise value varies across companies. The purpose of this paper is to investigate whether Indian manufacturing enterprises’ firm values are influenced by working capital management efficiency. The data are taken from 2016 to 2022 (a seven-year period) for 223 top BSE-listed manufacturing companies. Firm value (explained variable) is proxied using Tobin’s Q, and the constituents of working capital, which include the net trade cycle, inventory period, debtors’ collection period, and creditor payment period, are taken as explanatory variables. The study also controls for any differences in firm characteristics and economic conditions by employing firm size, age, current ratio, net profit ratio, sale growth and GDP growth rate. Balanced-panel data analysis is conducted by employing a two-step generalized method of moment technique. Net trade cycle, inventory period and debtors’ collection period are found to have a strong and significant positive impact on Tobin’s Q. The findings however did not report any evidence of the significant relationship between creditor payment period and Tobin’s Q. Additionally, the outcomes also evidenced that firm value is positively impacted by company size, net profit ratio, sales growth and GDP, whereas negatively affected by firm age. This paper suggests that manufacturing firms may potentially enhance their firm value by prolonging the net trade cycle, period of inventory and lengthening the credit period to customers till the level of attainment of an optimum working capital. |
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| issn | 1810-4967 1812-9358 |
| language | English |
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| spelling | doaj.art-d9c6a79ad3714d58bb3e9731d6e831a12023-09-05T10:52:20ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582023-09-0120322423810.21511/imfi.20(3).2023.1918729Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in IndiaRupali Gupta0Sunita Jatav1https://orcid.org/0000-0002-7946-4638Gagan Prakash2Assistant Professor, School of Business, Dr. Vishwanath Karad MIT World Peace University PuneAssistant Professor, School of Business, Dr. Vishwanath Karad MIT World Peace University PuneHead of the Department, IPS Academy, IBMR, SanwerThe long-term financial health of a corporation is assessed by its capacity to meet short-term financial commitments. Optimum working capital that maximizes enterprise value varies across companies. The purpose of this paper is to investigate whether Indian manufacturing enterprises’ firm values are influenced by working capital management efficiency. The data are taken from 2016 to 2022 (a seven-year period) for 223 top BSE-listed manufacturing companies. Firm value (explained variable) is proxied using Tobin’s Q, and the constituents of working capital, which include the net trade cycle, inventory period, debtors’ collection period, and creditor payment period, are taken as explanatory variables. The study also controls for any differences in firm characteristics and economic conditions by employing firm size, age, current ratio, net profit ratio, sale growth and GDP growth rate. Balanced-panel data analysis is conducted by employing a two-step generalized method of moment technique. Net trade cycle, inventory period and debtors’ collection period are found to have a strong and significant positive impact on Tobin’s Q. The findings however did not report any evidence of the significant relationship between creditor payment period and Tobin’s Q. Additionally, the outcomes also evidenced that firm value is positively impacted by company size, net profit ratio, sales growth and GDP, whereas negatively affected by firm age. This paper suggests that manufacturing firms may potentially enhance their firm value by prolonging the net trade cycle, period of inventory and lengthening the credit period to customers till the level of attainment of an optimum working capital.https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18729/IMFI_2023_03_R_Gupta.pdffirm valueGMM estimatorIndiapanel dataworking capital |
| spellingShingle | Rupali Gupta Sunita Jatav Gagan Prakash Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India Investment Management & Financial Innovations firm value GMM estimator India panel data working capital |
| title | Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India |
| title_full | Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India |
| title_fullStr | Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India |
| title_full_unstemmed | Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India |
| title_short | Does management of working capital enhance firm value? Empirical analysis of manufacturing enterprises in India |
| title_sort | does management of working capital enhance firm value empirical analysis of manufacturing enterprises in india |
| topic | firm value GMM estimator India panel data working capital |
| url | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18729/IMFI_2023_03_R_Gupta.pdf |
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