Working capital requirements of manufacturing SMEs: evidence from emerging economy
Review of International Business and Strategy
ISSN: 2059-6014
Article publication date: 4 September 2017
Abstract
Purpose
The purpose of this paper is to analyze the effects of various factors like profitability, growth opportunity, financial leverage, assets tangibility, operating cash flows, age and size of firm on working capital requirements (WCR) of manufacturing SMEs in India.
Design/methodology/approach
The paper uses a panel data regression model with fixed and random effect estimations. The data utilized in this study includes financial data of 254 manufacturing SMEs operating in India for the period 2010 to 2014.
Findings
The overall results of the study indicate that operating cash flow, financial leverage, profitability, sales growth and asset tangibility are the key drivers of WCR for Indian manufacturing SMEs. Profitability of firm and sales growth are found to be positively related to WCR. In contrast, asset tangibility, operating cash flow and financial leverage are found to be negatively related to WCR.
Research limitations/implications
This paper investigates firm-specific factors while ignoring external factors like GDP growth, business indicators and industry type. Further research can be done to assess the effect of these external factors on WCR.
Originality/value
This research contributes to the working capital literature by providing empirical evidence on determining factors of WCR in manufacturing SMEs.
Keywords
Citation
Singh, H.P. and Kumar, S. (2017), "Working capital requirements of manufacturing SMEs: evidence from emerging economy", Review of International Business and Strategy, Vol. 27 No. 3, pp. 369-385. https://doi.org/10.1108/RIBS-03-2017-0027
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited