Analysing Efficiency Change in Working Capital Management using Malmquist Productivity Index

Abstract

The purpose of this paper is to study the change in working capital management (WCM) efficiency in Indian manufacturing sector and analyse the effect of various exogenous factors. Data envelopment analysis based Malmquist productivity index (MPI) and it components pure efficiency change and scale efficiency change are used to gauge changes in WCM efficiency for the first time. Data from 1074 Indian manufacturing sector firms covering a period of 10 years (2004-2013) are used for the analysis. Using both graphical and statistical analysis we find that on an average there has been a continuous growth in efficiency over the years and that pure efficiency has increased more than scale efficiency. We also find that a number of firm-specific factors like sales growth, profitability, debt ratio and return on assets do affect the growth of WCM efficiency.