Working Capital Financing, Firm Performance and Financial Flexibility: Evidence from Indian Hospitality Firms

2020 ◽  
pp. 097215092096137
Author(s):  
Nufazil Altaf
Keyword(s):  
Firm Performance ◽  
Method Of Moment ◽  
Working Capital ◽  
Short Term ◽  
Financial Flexibility ◽  
Negative Effect ◽  
Capital Financing ◽  
Hospitality Firms ◽  
Break Even Point ◽  
The Impact

This article examines the relationship between working capital financing and firm performance for a sample of 185 Indian hospitality firms. In addition, this study examines the impact of financial flexibility on working capital financing performance relationship for a period of 10 years. This study employs two-step generalized method of moment (GMM) techniques to arrive at results. Results of the study confirm the inverted U-shaped relationship between working capital financing and firm performance with optimal break-even point, beyond which short-term debt financing has a negative effect on performance at 0.54. In addition, we found that firms likely to be more financially flexible can finance a greater proportion of working capital using short-term debt, since break-even point turns out to be high for firms likely to be more financially flexible. The study is expected to extend the existing debate on working capital management by using the sample of Indian Hospitality firms for analysing the above-mentioned relationships.

Working capital financing and corporate profitability of Indian manufacturing firms

2018 ◽  
Vol 56 (2) ◽  
pp. 441-457 ◽  
Author(s):  
Ajaya Kumar Panda ◽  
Swagatika Nanda
Keyword(s):  
Linear Relationship ◽  
Capital Requirement ◽  
Working Capital ◽  
Short Term ◽  
Financial Flexibility ◽  
Content Type ◽  
Indian Economy ◽  
Manufacturing Sectors ◽  
Non Linear ◽  
Capital Financing

Purpose The purpose of this paper is to provide empirical evidence about the relationship between working capital financing (WCF) and firm profitability in six key manufacturing sectors of Indian Economy. It also aims to capture the change in the financing of working capital requirement over different scenarios of price-cost margin and financial flexibility. Design/methodology/approach The study is undertaken on a sample of 1,211 firms from 6 key manufacturing sectors of Indian economy from 2000 to 2016. The non-linear relationship between WCF and profitability is studied using two-step generalized model of moments (GMM) estimator. Findings The study finds a convex relationship between WCF and profitability among firms in chemical, construction, and consumer goods sectors. Firms in these sectors can finance larger portion of their working capital requirements through short-term debt without negatively impacting profitability. However, a concave pattern of relationship for firms in machinery, metal, and textile industries implies increasing debt financing of working capital requirement would increase profitability for the firms who have financed lower portion of their working capital by short-term bank borrowing. But when a higher proportion of working capital requirements are already financed by short-term debt, a further increase in debt financing may impact profitability negatively. Moreover, the study finds that firms with high financial flexibility and high price-cost margin (except textile) can increase profitability by financing larger portion of working capital requirement through short-term debts and the continuation with risky WCF could increase profitability. Originality/value The study contributes to the literature on working capital in a number of ways. First, no previous study has been undertaken to explore the non-linear relationship between WCF and corporate profitability over a large sample of firms from six key manufacturing sectors of Indian economy. Second, the study uses a quadratic function to explore the non-linear relationship between WCF and profitability. Third, the study explores the relationship between WCF and profitability with respect to the price-cost margin and financial flexibility of firms under different manufacturing sectors of Indian economy. Finally, the study uses advanced two-step GMM, the panel data techniques to handle unobservable heterogeneity and issues of endogeneity within the data sample.

Working capital financing, firm performance and financial constraints

2019 ◽  
Vol 15 (4) ◽  
pp. 464-477 ◽  
Author(s):  
Nufazil Altaf ◽  
Farooq Ahmad
Keyword(s):  
Firm Performance ◽  
Financial Constraints ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Working Capital ◽  
Content Type ◽  
Capital Financing ◽  
Financing Performance ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between working capital financing and firm performance for a sample of 437 non-financial Indian companies. In addition, this study examines the impact of financial constraints on working capital financing–performance relationship. Design/methodology/approach The study is based on secondary financial data of 437 non-financial Indian companies obtained from Capitaline database, pertaining to a period of 10 years (2007–2016). This study employs two-step generalized method of moments techniques to arrive at results. Findings Results of the study confirm the inverted U-shape relationship between working capital financing and firm performance. In addition, the authors also found that the firms that are likely to be less financially constrained can finance greater proportion of working capital using short-term debt. Originality/value This study contributes to the scant existing literature by testing the impact of financial constraints on the relationship between working capital financing and firm performance, representing a typical emerging market in India.

An Analysis of The Impact of Short-Term Vacation Rentals on the Hotel Industry

2021 ◽  
pp. 109634802110191
Author(s):  
Jungtae Soh ◽  
Kwanglim Seo
Keyword(s):  
Economic Effect ◽  
Hotel Industry ◽  
Price Difference ◽  
Multiple Sources ◽  
Short Term ◽  
Hotel Performance ◽  
Negative Effect ◽  
Research Gap ◽  
The Impact ◽  
Scholarly Attention

Much scholarly attention has been paid to Airbnb’s influence on the hotel industry. However, extant studies have limitations because they consider only Airbnb while overlooking various other short-term vacation rental players that can also affect performance of hotels. To address this research gap, this study aims to provide a broader understanding of the impacts of short-term vacation rentals by analyzing data obtained from various vacation rental platforms. This study shows that while increase in short-term vacation rentals has an overall negative effect on hotel performance, the economic effect is more significant in the low-end market than in the high-end market. Our findings further reveal that the negative effect is reduced when there is a large price difference between short-term vacation rentals and hotels. By comprehensively examining multiple sources of data on hotels and vacation rentals, this study brings alternative perspectives to the attention of researchers for further investigation of vacation rentals.

scholarly journals The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

2020 ◽  
Vol 14 (1) ◽  
pp. 9
Author(s):  
Sorin Anton ◽  
Anca Afloarei Nucu
Keyword(s):  
Empirical Evidence ◽  
Ordinary Least Squares ◽  
Optimum Level ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Listed Firms ◽  
Firm Profitability ◽  
Break Even Point ◽  
The Impact

The purpose of this study is to investigate the relationship between working capital and firm profitability for a sample of 719 Polish listed firms over the period of 2007–2016. The scarcity of empirical evidence for emerging economies and the importance of working capital efficiency motivate the research on the working capital–financial performance relationship. The paper adopts a quantitative approach using different panel data techniques (ordinary least squares, fixed effects, and panel-corrected standard errors models). The empirical results report an inverted U-shape relationship between working capital level and firm profitability, meaning that working capital has a positive effect on the profitability of Polish firms to a break-even point (optimum level). After the break-even point, working capital starts to negatively affect firm profitability. The study brings theoretical and practical contributions. It extends and complements the literature on the field by highlighting new evidence on the non-linear interrelation between working capital management (WCM) and corporate performance in Poland. From the practitioners’ perspective, the results highlight the importance of WCM for firm profitability.

scholarly journals Capital Structure and Firm Performance: Evidence from Malaysian Public Listed Plantation Companies

2021 ◽  
Vol 5 (1) ◽  
pp. 123-142
Author(s):  
Kim Foong Jee ◽  
Jia En Joanne Ngui ◽  
Pei Pei Jessica Poh ◽  
Wai Loon Chan ◽  
Yet Siang Wong
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Significant Relationship ◽  
Firm Growth ◽  
Control Variable ◽  
Short Term ◽  
Total Debt ◽  
And Performance ◽  
The Impact

This paper examines the relationship between capital structure and performance of firms. The study is confined to plantation sector companies in Malaysia and is based on a sample of 39 firms which listed in Bursa Malaysia for the period from 2009 to 2019. This study uses two performance measures which are ROA and ROE as the dependent variable. Besides, the capital structure measures are the short-term debt, long-term debt, total debt and firm growth, which as the independent variables. Size will be the control variable in this study. Moreover, a fixed-effect panel regression analysis has been used to analyse the impact of capital structure on firm performance. The results indicate that firm performance, which is in term of ROA, have an insignificant relationship with short-term debt (STD) and long-term debt (LTD). For the total debt (TD) and growth, there is a significant relationship with ROA. However, for the performance measured by ROE, it has an insignificant relationship with short-term debt (STD), long-term debt (LTD) and total debt (TD). Furthermore, there is a significant relationship between the growth and the performance firms from plantation sector in Malaysia.

scholarly journals FINANCING OF WORKING CAPITAL REQUIREMENT, FINANCIAL FLEXIBILITY AND SME PERFORMANCE

2016 ◽  
Vol 17 (6) ◽  
pp. 1189-1204 ◽  
Author(s):  
Sonia BAÑOS-CABALLERO ◽  
Pedro J. GARCÍA-TERUEL ◽  
Pedro MARTÍNEZ-SOLANO
Keyword(s):  
Firm Performance ◽  
Financial Crisis ◽  
Method Of Moments ◽  
Generalized Method Of Moments ◽  
Capital Requirement ◽  
Working Capital ◽  
Financial Flexibility ◽  
Method Of Moments Estimator ◽  
Financing Performance ◽  
Financing Strategy

This paper investigates the relation between the financing strategies of working capital requirement and firm performance for the period 1997 to 2012. Using the two-step generalized method of moments estimator, we find that a suitable financing strategy can help firms improve their performance. Moreover, the results indicate that the working capital requirement financing-performance relation changes during a financial crisis. Finally, we also find that this relation depends on a firm’s financial flexibility. The findings are of interest for managers and researchers and show that managers should not only be concerned about investing in working capital requirement but also consider how this investment is to be financed. To the best of our knowledge, this is the first paper to analyse how the financing strategy selected by firms to finance their working capital requirement affects their performance.

The impact of trust on social and financial capital acquisition: A resource integration perspective in minority-owned entrepreneurial organisations

2022 ◽  
pp. 026624262110553
Author(s):  
Ronald L Pegram ◽  
Camelia L Clarke ◽  
James W Peltier ◽  
K Praveen Parboteeah
Keyword(s):  
Social Capital ◽  
Firm Performance ◽  
Policy Implications ◽  
Financial Capital ◽  
Resource Integration ◽  
Entrepreneurial Success ◽  
Negative Effect ◽  
Research Findings ◽  
The Impact ◽  
Minority Entrepreneurs

Although effective resource integration is a critical requisite for entrepreneurial success, the literature suggests there are crucial gaps for minority entrepreneurs. We examine how interracial distrust (ID), an indicator of the extent to which minority entrepreneurs distrust other races, is related to internal and social capital. We examine the relationships of such capitals on the willingness to borrow from banks and friends, and explore the link with firm performance. Using a sample of 276 primarily African American entrepreneurs, we find support for most of our hypotheses. We find that ID is negatively associated with external social capital and a willingness to borrow from banks. Surprisingly, we found that ID had a negative effect on internal social capital and a willingness to borrow from friends. We also found that internal and external social capital was positively related to firm performance. We discuss the implications of some of these surprising research findings as well as the policy implications.

scholarly journals The Effect of Board Diversity on Firm Performance: Evidence from Chinese L isted Companies

2020 ◽  
Vol 13 (1) ◽  
pp. 9-33
Author(s):  
Waqas Bin Khidmat ◽  
Muhammad Ayub Khan ◽  
Hashmat Ullah
Keyword(s):  
Firm Performance ◽  
Fixed Effects ◽  
Gender Diversity ◽  
Diversity Education ◽  
Method Of Moment ◽  
Fixed Effects Model ◽  
Foreign National ◽  
Board Diversity ◽  
Listed Firms ◽  
The Impact

Drawing on the upper echelon’s theory and the resource-based theory, the purpose of the study is to examine the impact of board diversity on the Chinese A-listed firm’s performance. The data were collected from A-listed companies registered in Shanghai SSE 180 and the Shenzhen 100 from the period 2007 to 2016. Since some of the companies got listed after 2007, our data is unbalanced. Both fixed effects model and a more robust dynamic panel generalised method of moment estimation are applied to cater the endogeneity problem. After controlling for several firms and board characteristics, we found gender diversity, education diversity and foreign national diversity measured through Blau index have a positive and significant effect on the Chinese A-listed firm performance for both the accounting and market measures. The age diversity and independence diversity seem not to be an essential determinant of firm performance in Chinese A-listed firms. The results supported the efficient monitoring hypothesis and managerial networking theory, which suggests that the director’s diversity reduces the managerial entrenchment on the one hand, while, through networking, increases the resources of the firms on the other side.

scholarly journals The Interplay between Working Capital Management and a Firm’s Financial Performance across the Corporate Life Cycle

2020 ◽  
Vol 12 (4) ◽  
pp. 1661 ◽  
Author(s):  
Zanxin Wang ◽  
Minhas Akbar ◽  
Ahsan Akbar
Keyword(s):  
Life Cycle ◽  
Firm Performance ◽  
Financial Performance ◽  
Life Cycle Stage ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Conservative Strategy ◽  
Corporate Life Cycle ◽  
The Impact

The purpose of this study is to examine the impact of working capital management (WCM) and working capital strategy (WCS) on firm’s financial performance across different stages of the corporate life cycle (CLC). We use Pakistani non-financial listed firms nested in 12 diverse industries over a period of 2005–2014 as the research sample and employ the hierarchical linear mixed (HLM) estimator, which can process multilevel data where observations are not completely independent. The empirical findings reveal that, overall, WCM is negatively associated with firm performance. However, this association is not static across different stages of a firm’s life cycle. For example, a negative association is more pronounced at the introduction stage followed by growth and decline stages, whereas WCM does not significantly impact the performance of mature firms. Likewise, WCS also causes varying effects on the financial performance across the CLC. A conservative strategy at the introduction, growth, and decline stages negatively affects firm performance, suggesting that these firms should adopt an aggressive strategy. Nevertheless, management of sample firms did not account for the respective life cycle stage while formulating a WCM strategy, which can seriously compromise their financial sustainability. These findings suggest that firms require customized WCM policies and WCS to attain sustainable financial performance at each stage of firm life cycle. Thus, managers should not overlook the significant role of CLC stages in their financial planning to ensure the sustainable functioning of the enterprise.

scholarly journals Impact of Agency Costs on Firm Performance: Evidence from Vietnam

2019 ◽  
Vol 10 (2) ◽  
pp. 294-309
Author(s):  
Le Duc Hoang ◽  
Tran Minh Tuan ◽  
Pham Van Tue Nha ◽  
Pham Van Tue Nha ◽  
Ta Thu Phuong
Keyword(s):  
Firm Performance ◽  
Instrumental Variables ◽  
Agency Costs ◽  
Negative Impact ◽  
Listed Companies ◽  
Econometric Models ◽  
Method Of Moment ◽  
Generalized Method Of Moment ◽  
The Impact

An assumption in agency costs theory is that agency costs can exert a negative impact on firm performance. In this study, we examine the impact of agency costs on firm performance of Vietnamese listed companies. Our sample includes 736 companies in Vietnam during the period om 2010 to 2015. We find that agency costs exert a negative impact on firm performance. Our results are robust to alternative econometric models, including an instrumental variables technique and a system generalized method of moment model. In addition, we show that a debt instrument can be a useful tool to reduce the negative impact of agency costs on firm performance.

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