Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Working-Capital Management and Profitability of the Construction Sector in Bangalore


Affiliations
1 Management Science, School of Business, Alliance University, Bangalore, Karnataka, India
     

   Subscribe/Renew Journal


Working-capital management is an important decision in financial management, playing a key role in a firm’s financial performance. For construction companies, working capital is all the more important due to the long project cycles they face.

The present study examines the impact of working capital on profitability in the construction sector in Bangalore, India. The data for the study were collected from a sample of five major builders based in Bangalore, and pertains to a study period during 2006-11. The study contributes to the literature by using fixed-effects-panel-regression analysis rather than pooled regression, as the fixed-effects panel regression allows control for company-specific differences in profitability as well as for year-to-year differences in profitability for the industry as a whole.

The results of the study suggest that construction companies should focus on two working-capital variables to maximize their profitability, viz. average collection period and accounts payable, both of which were found to have significant positive impact on profitability.


Keywords

Working-Capital Management, Construction Industry, Project Cycle, Average Collection Period, Accounts Payable.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Afza, T., & Nazir, S. M. (2007a). Working capital management policies of firms: Empirical evidence from Pakistan. Presented at 9th South Asian Management Forum, North-South University, Dhaka, Bangladesh.

  • Afza, T., & Nazir, S. M. (2007b). Is it better to be aggressive or conservative in managing working capital? Presented at Singapore Economic Review Conference.

  • Afza, T., & Nazir, S. M. (2008). On the Factor Determining Working Capital Requirements. Proceedings of American Society of Business and Behavioral Sciences 15(1), 293-301.

  • Afza, T., & Nazir, S. M. (2009). Is it better to be aggressive or conservative in managing working capital? IUP Journal of Applied Finance, 15(8), 19-30.

  • Azhar, N., & Noriza, M. (2010). Working capital management: The effect of market valuation and profitability in Malaysia. International Journal of Business and Management, 5(11), 140-147.

  • Charitou, M. S., Elfani M., & Lois, P. (2010). The effect of working capital management on firms profitability: Empirical evidence from an emerging market. Journal of Business and Economic Research, 8(12), 63 -68.

  • Cheng, L., & Chiou, J. (2006). The determinants of working capital management. Journal of American Academy of Business, 10(1), 149-155.

  • Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance and Accounting, 30(3/4), 573-587.

  • Driscoll, J., & Kraay, A. (1998). Consistent covariance matrix estimation with spatially dependent panel data. The Review of Economics and Statistics, 80(4), 549-560.

  • Eljelly, A. (2004). Liquidity-profitability tradeoff: An empirical investigation in an emerging market. International Journal of Commerce & Management, 14(2), 48-61.

  • Filbeck, G., & Krueger, M. T. (2005). An analysis of working capital management results across industries. Mid-American Journal of Business, 20, 11-18.

  • Ganesan, V. (2007). An Analysis of Working Capital Management Efficiency in Telecommunications Equipment Industry. Rivier Academic Journal, 3(2), 1-10.

  • Ghosh, S. K., & Maji, S. G. (2003). Working capital management efficiency: A study on the Indian Cement Industry. The Institute of Cost and Works Accountants of India.

  • Jose, M. L., Lancaster, C., & Stevens, J. L. (1996). Corporate returns and cash conversion cycle. Journal of Economics and Finance, 20(1), 33-46.

  • Lamberson, M. (1995). Changes in working capital of small firms in relation to changes in economic activity. Mid-American Journal of Business, 10(2), 45-50.

  • Lazaridis, I., & Tryfonidis, D. (2006). Relationship between working capital management and profitability of listed companies in the Athens Stock Exchange. Journal of Financial Management and Analysis, 19(1), 26-35.

  • Mathuva, D. (2009). The influence of working capital management components on corporate profitability: A survey on Kenyan listed firms. Research Journal of Business Management, 3, 1-11.

  • Pandey, I. M., & Parera, K. L. W. (1997). Determinants of effective working capital management: A discriminant analysis approach. Indian Institute of Management Ahmadabad Working Paper # 1349.

  • Rehman A. (2006). Working capital management and profitability: Case of Pakistani firms, (Unpublished Dissertation). COMSATS Institute of Information Technology (CIIT), Islamabad, Pakistan.

  • Rehman, A., & Nasr, M. (2007). Working capital management and profitability: Case of Pakistani firms. International Review of Business Research Papers, 3(1), 279-300.

  • Shin, H., & Soenen, L. (1998). Efficiency of working capital and corporate profitability. Financial Practice and Education, 8(2), 37-45.

  • Siddiquee, M., & Khan, S. M. (2009). Analyzing Working Capital Performance: Evidence from Dhaka Stock Exchange (DSE) Ltd. SSRN Working Paper Series, Available at SSRN: http://ssrn.com/abstract=1374210

  • Soenen, L. A. (1993). Cash conversion cycle and corporate profitability. Journal of Cash Management, 13(4), 53-58.

  • Vishnani, S., & Shah, B. (2007). Impact of working capital management policies on corporate performance: An empirical study. Global Business Review, 8(2), 267-281.

  • Weinraub, H. J., & Visscher, S. (1998). Industry practice relating to aggressive conservative working capital policies. Journal of Financial and Strategic Decision, 11(2), 11-18.


Abstract Views: 316

PDF Views: 0




  • Working-Capital Management and Profitability of the Construction Sector in Bangalore

Abstract Views: 316  |  PDF Views: 0

Authors

Mihir Dash
Management Science, School of Business, Alliance University, Bangalore, Karnataka, India

Abstract


Working-capital management is an important decision in financial management, playing a key role in a firm’s financial performance. For construction companies, working capital is all the more important due to the long project cycles they face.

The present study examines the impact of working capital on profitability in the construction sector in Bangalore, India. The data for the study were collected from a sample of five major builders based in Bangalore, and pertains to a study period during 2006-11. The study contributes to the literature by using fixed-effects-panel-regression analysis rather than pooled regression, as the fixed-effects panel regression allows control for company-specific differences in profitability as well as for year-to-year differences in profitability for the industry as a whole.

The results of the study suggest that construction companies should focus on two working-capital variables to maximize their profitability, viz. average collection period and accounts payable, both of which were found to have significant positive impact on profitability.


Keywords


Working-Capital Management, Construction Industry, Project Cycle, Average Collection Period, Accounts Payable.

References