Working capital management practices in India: survey evidence

Abstract

Purpose The purpose of this paper is to investigate the working capital management (WCM) practices adopted by Indian firms listed on the National Stock Exchange (NSE). Design/methodology/approach Using a questionnaire, the authors gather data from 110 financial managers and use various statistical techniques to test for statistical significance. Findings The evidence shows that the majority (54.5 percent) of sample firms follow a moderate approach in financing their activities, which involves a trade-off between liquidity and profitability. Respondents tend to use an informal approach for WCM and consider receivables management as the most important component of WCM. In terms of WCM monitoring and financial measures, respondents mainly consider the cash conversion cycle and net working capital. Indian firms tend to use centralized cash management and rely heavily on material requirement planning (MRP) and enterprise resource planning (ERP) for proper inventory management. Research limitations/implications Tests involving firm size, foreign sales, and average age do not differ significantly between the NSE-listed firms and the sample firms. This evidence lessens concerns of non-response bias and the ability to generalize the findings to Indian firms. Originality/value By updating and extending previous research on WCM, this study fills a gap in the literature by providing insights into practices adopted by Indian firms in managing WCM and its components.