Firm Performance vis-à-vis Working capital Management: An empirical study of Indian Real Estate Sector.

Abstract

Working Capital Management (WCM) is one of the vital components of financial management where the focus lies on the short-term aspect of financial decision making. The present study is focused on understanding the effect of working capital management on financial performance of Indian Real Estate listed firms and exploring the various factors that influence it. The study is based on secondary data collected from 'Capitaline Plus’ database. The data consists of an unbalanced panel including 1,498 firm-year observations for 123 real estate listed firms with a minimum observation of 3 years and a maximum observation of 18 years. A random-effects regression model is used by taking performance-based measures such as Return on Assets (ROA) and Market to Book Ratio (MBR) as dependent variables along with Cash Conversion Cycle (CCC) and its components as the explanatory variables. Size, Leverage, Growth, Operating Efficiency, and GDP growth are considered as control variables. The findings highlight that there is no direct linkage of CCC with financial performance neither with ROA nor with MBR. The individual components such as Inventory Conversion Period (ICP), Accounts Receivables Period (ARP), and Accounts Payable Period (APP) have a negative relationship with financial performance. The control variables also show a mixed result on the financial performance.

© 2022 The Authors. Published by Department of Estate Management and Valuation, University of Sri Jayewardenepura.

Keywords: Working Capital, Cash Conversion Cycle, Financial Performance, India, Random Effects