IMPACT OF WORKING CAPITAL POLICIES ON MARKET VALUE OF FIRM: A STUDY OF SELECTED INDIAN MANUFACTURING COMPANIES

Abstract

Conventionally,the finance researchers across the world have predominantly focused on the areas of research, which are confined to capital budgeting, financial decision making, financial risk, operational risk, investments, dividends etc. However, current assets and current liabilities are indispensable components of working capital management which are to be carefully examined. Hence, the present study investigates the impact of working capital management policies namely investment policy and financing policy on the market value of Indian manufacturing firms measured by Tobin’s-Q (TQ). The study uses the balanced panel data set of 100 manufacturing firms listed at BSE-500 indices for the period 2007-2017. The finding reveals a positive and significant impact of aggressive investment policy on the value of firms. Conversely, the aggressive financing policy of the firms have a significant and negative impact on the value of firms. Moreover the findings of the study implies that the firm’s manager can create value of the firms by adopting a conservative approach towards working capital investment policy and working capital financing policies.