International Journal of Business and Economics Volume 22, No. 1 June, 2023

Working Capital Management Efficiency, Cash Holdings, and Market Value of Indian Listed Firms

Kumar Kamlesh

IFMR Graduate School of Business, Krea University, India

Narayanasamy Sivasankaran

XLRI-Xavier School of Management, Jamshedpur, Jharkhand, India

Chakrabarti Prasenjit

Indian Institute of Management-Ranchi (IIM-Ranchi), Ranchi, Jharkhand, India

Ramachandran Giridhar

XLRI-Xavier School of Management, Jamshedpur, Jharkhand, India

Abstract

This study aims to empirically explore the effect of working capital management (WCM) efficiency on the market value of the firms. The study also aims to examine the role of cash holdings in the nexus between WCM efficiency and the market value of the sample firms. The generalized method of moments (GMM) has been used for empirical investigation based on data collected for 700 Indian-listed firms for ten years (2012-2021). We have found that firms with WCM efficiency {shorter net trade cycle (NTC)} have generated higher market value {higher earnings price (EP) ratio} in the Indian context. Cash holdings are observed to have an interactive impact on the positive connection between efficient WCM and the market value of the sample firms. In the case of firms with above-median operating working capital (OWC), this relationship is steeper if they have positive cash holdings instead of negative cash holdings. However, there is no interactive impact of cash holdings on this relationship in the case of firms with below-median OWC.

Keywords：Efficient Working Capital Management, Market Value, Cash Holdings, Nexus, Indian Listed Firms

JEL Classifications：G31, G32

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