Determinants of WCM of Indian listed firms: A GMM regression approach

Figures & data

Table 1. Review of literature

Study	Sample firms	Country	Methodology	Variables	WCM Proxies	Determinants of WCM
Al-Talab et al. (2010)	82 listed firms	Jordon	Panel OLS	GDP and WCR	WCR	Operating cash flow, sales growth, firm performance and value
Abbadi and Abbadi (2013)	11 listed firms	Palestine	Panel OLS	Firm characteristics, interest rate and GDP	WCR	CCC, return on assets and operating cash flow
Ali and Khan (2011)	28 listed firms	Pakistan	OLS	Firm characteristics and business cycle	WCR, NLB	Factors are varying across sectors
Akinlo (2012	66 listed firms	Nigeria	Panel OLS and fixed effects	Firm characteristics and GDP	WCR, CCC	Operating cycle, size and sales growth, Leverage and GDP
Baños-Caballero et al. (2010)	4,076 SMEs	Spain	Panel OLS and GMM	Firm characteristics, interest rate and GDP	CCC	Debts, growth opportunities, size, fixed assets and performance and age
2006)	19,180 listed firm	Taiwan	Panel OLS	Firm characteristics, business cycle and recession	WCR and NLB	Growth opportunities, firm age, size and performance
2017)	1,253 firms	14 emerging countries	Panel OLS with fixed effects	Firm characteristics, industry country-level factors	WCR	Tobin Q, Altman Z-score, exchange rate and rule of law
2018)	17,161 unlisted firms	India	Panel OLS and GMM	Firm characteristics	CCC	Cash flow, growth opportunities and leverage
2017)	314 listed firms	Vietnam	Panel GMM	Firm characteristics	WCR	Firm size and investment in fixed assets
2015)	1,200 listed firms	India	Panel GLS with fixed effect	Firm characteristics	CCC	Firm age, fixed assets, profitability and sales growth
2011)	166 listed firms	Canada	Panel OLS	Firm characteristics	WCR	Growth opportunities and firm size.
Hill et al. (2010)	3,343 firms	USA	Panel OLS with fixed effects	Firm characteristics and industry practices	WCR	Operating cash flow and size Sales variance, market-to-book ratio
2015)	57 listed firms	Malaysia	Panel OLS with random effects	Firm characteristics	CCC	Profitability, size and sales growth
2013)	9 listed firms	Pakistan	Panel OLS with fixed effect	Firm characteristics	CCC	Debts, fixed assets, sales growth and firm size
2014)	9,254 firms	Brazil, Argentina, Chile and Mexico	Panel OLS with fixed effects and quantile regression	Firm characteristics, industry concentration, and country risk	CCC	Firm size and country risk
2012)	94 listed firms	Singapore	Panel OLS with fixed and random effects	Firm characteristics and GDP	CCC	Firm size, operating cash flow, capital expenditure and GDP
2012)	96 listed firms	Brazil	Panel GLS with fixed effects	Firm characteristics and governance mechanisms	WCR and CCC	Debt, free cash flow and sales growth
2017)	760 firms listed firm	China	Panel GMM	Firm characteristics, governance mechanisms and GDP	WCR	Firm size, asset tangibility, operating cash flow, GDP, debt, board size and board independence
Wiguna and Wasistha (2017	85 listed firm	Indonesia	Panel GLS	Firm characteristics and economic conditions	WCR	Leverage
2016)	30 listed firms	Malaysia	Panel OLS with fixed and random effects,	Firm characteristics, executive compensation	CCC	Leverage, operating cash flow, performance, executive compensation, and inflation rate

Table 2. Variable description

Variable	Description
Dependent variable
Working Capital Requirement (WCR)	Networking capital/total assets. Where net working capital is the difference between current assets and current liabilities of the firm.
Cash Conversion Cycle (CCC)	Inventory period + accounts receivables period – accounts payable period
Independent Variable
Operating cash flows (OCF)	Operating cash flows/total assets,
Return on Assets (ROA)	Net profit after taxes/total assets
Growth Opportunities (GROWTH)	Percentage change in sales over the previous year
Firm value (TQ)	(Market value of equity + book value of total debts)/total assets
Firm Size (Size)	Natural logarithm of total assets
Firm Age (Age)	Natural logarithm of the firm’s age since the date of its incorporation i.e listing date on stock exchange.
Leverage (LEV)	Total debts/total assets
Economic conditions (GDP)	Annual change in the real gross domestic product

Authors Own Calculation

Table 3. Descriptive statistics

Variables	Mean	Median	Std. Deviation	Minimum	Maximum
WCR	.1430	.1300	.19711	−1.24	1.00
CCC	38.8988	30.1700	65.03286	−684.11	657.57
OCF	.0859	.0800	.09268	−.99	.72
ROA	.1006	.0700	.43796	−2.49	15.59
TQ	2.5949	1.7500	2.98393	−1.35	70.00
AGE	40.2423	34.0000	22.86436	−3.00	140.00
SIZE	149715.8784	34901.9500	446092.05106	0.00	7766990.00
SizeL	4.5905	4.5434	.68322	−1.00	6.89
LEV	.7114	.4800	12.53527	0.00	676.60
GROWTH	.0676	.1000	.62269	−27.20	1.00
GDP	7.0260	6.8900	1.20833	4.90	8.89

Table 4. Correlation

Correlations
	WCR	CCC	OCF	ROA	TQ	AGE	LEV	GROWTH	GDP	Size (log)
WCR	1
CCC	.264**	1
OCF	.019	−.128**	1
ROA	0.212	−.078	.066**	1
TQ	.097	−0.068	−.024	−.028	1
AGE	−.067	−.042	.018	.006	−.006	1
LEV	−0.397	−.011	−.019	−.006	−.011	−.030	1
GROWTH	.025	.068**	.066**	−.020	−.042*	−.029	−.001	1
GDP	0.073	−.010	.006	.066**	−.027	−.069**	−.005	.029	1
Size(log)	−.269**	−.091**	−.068**	.032	−.114**	.234**	−.132**	−.026	−.107**	1

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

Source: Author’s Calculations.

Table 5. Working capital requirement OLS regression

WCR
	Coefficients (t-values)	Sig (.05%)	Tolerance	VIF
(Constant)	17.767	.000
OCF	−1.252	.211	.983	1.017
ROA	7.274	.000	.989	1.012
TQ	−2.037	.042	.981	1.019
AGE	3.789	.000	.941	1.062
SIZE(Log)	2.030	.042	.981	1.020
LEV	1.381	.167	.991	1.009
GROWTH	−4.475	.000	.980	1.021
GDP	−16.031	.000	.900	1.112
No. of observations	2894
Adjusted R2	0.099
F-statistic	40.869
Durbin–Watson statistic	1.859
Significant at .01

Source: Authors Calculation The table shows the regression values for the WCR model

Table 6. Wcr – ANOVA

Model		Sum of Squares	df	Mean Square	F	Sig.
1	Regression	11.470	8	1.434	40.869	.000^b
	Residual	101.246	2886	.035
	Total	112.716	2894

a. Dependent Variable: WCR

b. Predictors: (Constant), SizeL, GROWTH, ROA, OCF, TQ, GDP, LEV, AGE

Table 7. Cash conversion cycle OLS regression

	Coefficients (t-values)	Sig (.05%)	Tolerance	VIF
(Constant)	10.686	.000
OCF	−8.160	.000	.983	1.017
ROA	−.909	.363	.989	1.012
TQ	−8.872	.000	.981	1.019
AGE	.461	.645	.941	1.062
SIZE(Log)	−1.782	.075	.981	1.020
LEV	3.796	.000	.991	1.009
GROWTH	−1.765	.078	.980	1.021
GDP	−6.677	.000	.900	1.112
No. of observations	2910
Adjusted R2	0.058
F-statistic	23.139
Durbin–Watson statistic	1.898
Significant at .01

Source: Authors Calculation. The table shows the regression values for the CCC model

Table 8. Ccc—anova

Model		Sum of Squares	Df	Mean Square	F	Sig.
1	Regression	740196.927	8	92524.616	23.139	.000^b
	Residual	11539943.293	2886	3998.594
	Total	12280140.220	2894

a. Dependent Variable: CCC

b. Predictors: (Constant), SizeL, GROWTH, ROA, OCF, TQ, GDP, LEV,AGE

Table 9. GMM estimate for WCR

Two-Step GMM Estimate			Dynamic GMM estimate
Model	1		2		3
	Coefficients	t-values	Coefficients	t-values	Coefficients	t-values
WCRt-1	0.635	12.854***	0.458	36.524***	0.41	16.854***
OCF	−0.1425	−3.236***	−0.096	−5.124**	−0.079	−3.265**
ROA	.2920	3.954***	0.411	9.957***	0.411	10.025***
TQ	.020	2.295***	0.024	4.154**	0.031	6.112**
AGE	0.004	1.745*	0.11	3.958**	0.049	0.436**
SizeL	−0.0690	−3.658**	0.049	6.154**	0.061	5.965***
LEV	−0.073	−3.124*	−0.685	−1.991**	−0.088	−1.296**
GROWTH	−0.029	−1.652*	−0.029	2.541**	−0.43	−3.121***
GDP	−0.0039	1.695**	−0.005	−5.952***	−0.017	−5.549***
Industry Dummy	Used		Not-Used		Not-Used
Control for firm effect	No		Yes		Yes
Control for Year effect	No		No		Yes
No. of observation	2910		2910		2910
Adjusted R^2	0.857		-		-
Durbin–Watson statistic	1.812		-		-
Sargan statistic (p-value)	7.256	a	50.168	0.192	41.622	0.221
Arellano–Bond test (p-value)	-		−1.002	0.301	−0.826	0.352

Notes: *,**,*** Significant at .1005,0.01 levels

Table 10. GMM estimates for CCC

Two-Step GMM Estimate			Dynamic GMM estimate
	1		2		3
Model	Coefficients	t-values	Coefficients	t-values	Coefficients	t-values
CCCt-1	0.875	31.254***	−0.011	−1.758*	−0.42	−4.186***
OCF	−1.754	−4.121**	−0.956	−61.584***	−0.985	−18.988***
ROA	2.152	3.954***	1.765	20.325**	1.278	13.948***
TQ	.0156	3.125**	0.081	5.024***	0.059	2.201**
AGE	.006	.195	−1.141	−10.256	0.215	.812
SizeL	−0.410	−1.021	−0.108	−7185***	−0.093	4.965**
LEV	.315	2.014**	0.215	4.965***	0.342	2.187***
GROWTH	−0.121	−0.396	−0.312	−18.542**	−0.491	−11.958**
GDP	.065	2.158**	0.003	1.521	0.002	0.129
Industry Dummy	Used		Not-Used		Not-Used
Control for firm effect	No		Yes		Yes
Control for Year effect	No		No		Yes
No. of observation	2910		2910		2910
Adjusted R^2	0.832		-		-
Durbin–Watson statistic	2.354		-		-
Sargan statistic (p-value)	10.887	0.298	41.897	0.345	30.548	0.701
Arellano–Bond test (p-value)	-		−1.211	0.205	−1.021	0.212

Notes: *,**,*** Significant at .1005,0.01 levels

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