Using intellectual capital to improve the effectiveness of working capital management in an organization

Purpose The purpose of this study is to investigate the nexus between intellectual capital and working capital management for the Indian extraction firms. Design/methodology/approach This study uses cash conversion cycle and working capital requirement as a measure of working capital management, and value-added intellectual coefficient and modified value-added intellectual coefficient as a measure of intellectual capital to investigate the nexus. This study uses panel-corrected standard errors technique to test the aforementioned relationship using a sample of 67 extraction firms for the period 2010–2019. Findings The results provide empirical confirmation of a negative relationship between intellectual capital and working capital measures in extraction firms in India. Further evaluation reveals that the capital-employed-coefficient is the only intellectual capital component driving the working capital measures of firms. Other factors influencing working capital are firm size, sales growth and leverage. Originality/value This study makes a scholarly contribution by exploring the association between intellectual capital and working capital management, enriching the understanding of efficient working capital management in an emerging economy, India. To the best of the author’s knowledge, this study is one of the first to investigate the above relationship.