Is the relationship between working capital management and firm profitability non-linear in Indian SMEs?

ABSTRACT

The aim of this paper is to examine the relationship between working capital management (WCM) and firm profitability for a sample of 2122 Indian SMEs. The study is based on secondary financial data obtained from electronic database PROWESS of Centre for Monitoring Indian Economy (CMIE), pertaining to a period of 12 years. The study employs two-step generalized method of moments (GMM) estimation to arrive at the results. The estimates of two-step GMM confirm an inverted U-shape relationship between WCM and firm profitability.

KEYWORDS:

• Working capital management
• firm profitability
• Indian SMEs: panel data

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Vision 2020: Implications for MSMEs 2011.

2 These results are available upon request.

3 These results are available upon request.