Impact of working capital management policies on firms’ earnings and value: Empirical evidence from indian manufacturing companies

Traditionally, the central focus of organisations was on managing their long-term assets. But they realised that neglecting the short-term assets and liabilities can affect their very survival. Working capital management has become imperative for every business organisation as it can upset the firms’ profitability, value and level of risk. This paper investigates the relationship between working capital policy and firms’ performance. The working capital policies are Aggressive Financing Policy (AFP) and Aggressive Investment Policy (AIP). The firms’ performance has been measured in terms of return on assets (ROAs), Net Profit Ratio (NPR) and Tobin's q. The data were collected from secondary sources covering a period of 6 years, that is, 2011–16. The sample size was 10 Indian manufacturing companies. The analysis shows that both aggressive financing policy and investment policy have significant positive impact on firm's ROAs and significant negative relationship with firm's value. So far as firms’ net profit is concerned, aggressive financing policy has significant negative impact on it whereas aggressive investment policy has significant positive impact on it.