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Exploring predictors of working capital management efficiency and their influence on firm performance: an integrated DEA-SEM approach

Benchmarking : an international journal, 2021-04, Vol.28 (4), p.1120-1145 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited 2020 ;ISSN: 1463-5771 ;EISSN: 1758-4094 ;DOI: 10.1108/BIJ-05-2020-0251

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  • Title:
    Exploring predictors of working capital management efficiency and their influence on firm performance: an integrated DEA-SEM approach
  • Author: Seth, Himanshu ; Chadha, Saurabh ; Sharma, Satyendra Kumar ; Ruparel, Namita
  • Subjects: Artificial intelligence ; Capital requirements ; Current liabilities ; Data envelopment analysis ; Decision making ; Efficiency ; Inventory ; Investments ; Manufacturing ; Mathematical models ; Measurement techniques ; Multivariate statistical analysis ; Profitability ; Profits ; Receivables ; Social responsibility ; Working capital
  • Is Part Of: Benchmarking : an international journal, 2021-04, Vol.28 (4), p.1120-1145
  • Description: PurposeThis study develops an integrated approach combining data envelopment analysis (DEA) and structural equation modeling (SEM) for estimating the working capital management (WCM) efficiency and evaluating the effects of diverse exogenous variables on the WCM efficiency and firms' performance.Design/methodology/approachDEA is applied for deriving WCM efficiency for 212 Indian manufacturing firms over a period from 2008 to 2019. Also, the effect of human capital (HC), structural capital (SC), cost of external financing (CEF), interest coverage (IC), leverage (LEV), net fixed asset ratio (NFA), asset turnover ratio (ATR) and productivity (PRD) on the WCM efficiency and firms' performance is examined using SEM.FindingsThe average mean efficiency scores ranging from 0.623 to 0.654 highlight the firms operating at around 60% of WCM efficiency only, which is a major concern for Indian manufacturing firms. Further, IC, LEV, NFA, ATR revealed direct effect on the WCM efficiency as well as indirect effect on firms' performance, whereas CEF had only a direct effect on WCM efficiency. HC, SC and PRD had no effects on WCM efficiency and firms' performance.Practical implicationsThe findings offer vital insights in guiding policy decisions for Indian manufacturing firms.Originality/valueThis study is the first to identify the endogenous nature of the relationship of HC, SC, CEF, IC altogether with firms' performance, compounded by the WCM efficiency, by applying a comprehensive methodology of DEA and SEM and provides an efficiency performance model for better decision-making.
  • Publisher: Bradford: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 1463-5771
    EISSN: 1758-4094
    DOI: 10.1108/BIJ-05-2020-0251
  • Source: ProQuest Central
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