Abstract:
Purpose – This paper aims to investigate how firms growing at a high average rate over a period differ in
their working capital management (WCM) efficiency from those growing at a low rate during the same period.
It also examines how WCM efficiency impacts firms’ financial performance and how firms’ growth influences
this relationship.
Design/methodology/approach – The authors have analyzed the difference in WCM efficiency of a
sample of 431 nonfinancial firms during 2012 to 2019 by segregating them into above median growth (AMG)
and below median growth (BMG) firms. The authors have used fixed effect regression to investigate the
impact of cash conversion cycle, inventory days, accounts receivable days and accounts payable days on the
financial performance and the effect of growth on this relationship.
Findings – This study finds that AMG firms manage their working capital significantly more efficiently than
BMG firms. It also reports that the WCM efficiency impacts the profitability and valuation of firms positively;
however, this relationship is more intense for firms growing at a high rate than for those growing at a low rate.
Originality/value – This research should contribute to the less researched area of WCM by finding the
effect of growth on the relationship between WCM efficiency and performance. The evidence found in this
study may be of interest for industry practitioners and managers in identifying WCM efficiency as an
important driver for the financial performance of their firms.