Bayesian analysis of working capital management on corporate profitability: evidence from India

Arvind Shrivastava · Nitin Kumar · P. C. Kumar

32 citations0/0 files storedJournal of Economic Studies

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Working Capital and Financial Performance Corporate Finance and Governance Supply Chain and Inventory Management

Abstract

Purpose Decisions pertaining to working capital management have pivotal role for firms’ short-term financial decisions. The purpose of this paper is to examine impact of working capital on profitability for Indian corporate entities. Design/methodology/approach Both classical panel analysis and Bayesian techniques have been employed that provides opportunity not only to perform comparative analysis but also allows flexibility in prior distribution assumptions. Findings It is found that longer cash conversion period has detrimental influence on profitability. Financial soundness indicators are playing significant role in determining firm profitability. Larger firms seem to be more profitable and significant as per Bayesian approach. Bayesian approach has led to considerable gain in estimation fit. Practical implications Observing the highly skewed distribution of dependent variable, Multivariate Student t-distribution has been considered along with normal distribution to model stochastic term. Accordingly, Bayesian methodology is applied. Originality/value Analysis of working capital for firms has been performed in Indian context. Application of Bayesian methodology is performed on balanced panel spanning from 2003 to 2012. As per author’s knowledge, this is the first study which applies Bayesian approach employing panel data for the analysis of working capital management for Indian firms.

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References

2000Financial intermediation and growth: Causality and causes 2004Finance and Growth: Theory and Evidence 2003Does Working Capital Management Affect Profitability of Belgian Firms?2004Liquidity - profitability tradeoff: An empirical investigation in an emerging market 2006Relationship Between Working Capital Management and Profitability of Listed Companies in the Athens Stock Exchange 2005An Analysis of Working Capital Management Results Across Industries 1998EFFICIENCY OF WORKING CAPITAL AND CORPORATE PROFITABILITY 2010Determinants of Economic Growth: A Bayesian Panel Data Approach

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2020Asset Tangibility and Financial Performance: A Time Series Evidence 2021Determinants of working capital: empirical evidence on manufacturing SMEs 2023Financial condition, working capital policy and profitability: evidence from Indian companies 2018The impact of corporate finance decisions on market value in emerging markets 2021Meta-study on the relationship between profitability and liquidity of enterprises in macroeconomic and institutional environment

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