Covid-19, has wreaked havoc in ordinary life, health and finance have taken the worst hit. As for finance, people saw the loss of their livelihood, businesses collapsed and for several mid-scale and large-scale businesses, the working capital and firm performance diminished to a great extent. In the given context, Dr Pradeep Rathore Assistant Professor from The Paari School of Business (PSB) published a compelling research paper titled, “Working Capital and Firm Performance: Role of COVID-19 Disruption” in International Journal of Productivity and Performance Management” where he addresses the issue and analyses the cause.

Abstract

This study examines the performance effect of working capital for a large sample of Indian manufacturing firms in light of supply chain disruption, i.e. the COVID-19 pandemic. This study is based on secondary data collected from the Prowess database on Indian manufacturing firms listed on the Bombay Stock Exchange (BSE) 500. Panel data regression analyses are used to estimate all models. Moreover, this study has employed robust standard errors to consider for heteroscedasticity concerns. The results challenge the current notion of working capital investment and reveal that higher working capital has a positive and significant impact on firm performance. Further, it highlights that Indian manufacturing firms suffered financially post-COVID-19 as they significantly lack the working capital to run day-to-day operations. This research contributes to the scant literature by examining the association between working capital financing and firm performance in light of the COVID-19 pandemic, representing typical developing economies like India.

The study implies that organisations need to have higher working capital during an economic downturn such as COVID-19 as it takes care of present and future financing needs, to facilitate their day-to-day operational activities, and to enhance performance of both working capital and firm performance, operational and financial. The study also suggests that Managers should understand the value of working capital and advocate for higher working capital investment to address supply chain disruptions during economic downturns.

Dr Pradeep Rathore is presently working on topics related to sustainable development
goals, sustainability, and solid waste management.