Title: Measuring efficiency of working capital management: a two-stage data envelopment analysis approach

Authors: Utkarsh Goel; Anil K. Sharma

Addresses: Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee – 247667, Uttarakhand, India ' Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee – 247667, Uttarakhand, India

Abstract: The purpose of this paper is to analyse the efficiency of working capital management (WCM) in Indian manufacturing firms during the period 2004-2013. The paper describes and uses a new approach based on data envelopment analysis (DEA) to measure the WCM efficiency of firms. Two-stage bootstrapped DEA is employed to first calculate the efficiency and then analyse the effect of exogenous variables on it. We find that the average WCM efficiency over the last ten years was around 40% and majority of the firms were on the lower side of the average. Firm-specific factors like firm's age, proportion of fixed assets, return on asset and sales growth are found to have significant effect on efficiency, whereas macroeconomic factors have a somewhat inconsistent effect. The paper further suggests that the DEA-based measure is not only able to overcome the limitations of traditional measures like mathematical incorrectness and assignment of fixed weights to constituents but also offers several additional advantages.

Keywords: working capital management; WCM efficiency; efficiency measurement; data envelopment analysis; DEA; net trade cycle; NTC; cash conversion cycle; CCC; determinants; manufacturing industry; India; firm age; fixed assets; return on assets; ROA; sales growth; macroeconomic factors.

DOI: 10.1504/IJBEX.2016.079251

International Journal of Business Excellence, 2016 Vol.10 No.4, pp.523 - 544

Received: 13 Dec 2014
Accepted: 27 Jan 2015
Published online: 26 Sep 2016 *

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