Working capital management efficiency in Indian manufacturing sector: trends and determinants

The purpose of this paper is to study the working capital management (WCM) efficiency of firms belonging to the Indian manufacturing sector. We use a large sample of 1,200 firms to analyse the trend in WCM efficiency across ten years (2004 to 2013). We divide these firms into 11 major industries and study the influence of several exogenous firm specific and macroeconomic factors on WCM efficiency. Our study reveals that WCM efficiency has undergone considerable changes during the past ten years and there has been effect of the financial crisis to some extent. We find that firm specific factors like debt ratio, proportion of net fixed assets to total assets, profitability, sales growth, size and age of firm do affect WCM efficiency of firms whereas, there is an insignificant effect of macroeconomic factors. Our study reveals new evidences for better understanding of the short term financial behaviour of firms in developing economies like India.