Working Capital Optimization in the Energy Sector: The Intellectual Capital Perspective

ABSTRACT This study examines the relationship between working capital management and intellectual capital in the Indian energy sector firms. To investigate such nexus, this study uses the cash‐conversion‐cycle and working‐capital‐requirement as a measure of working capital management and the value‐added‐intellectual‐coefficient and modified‐value‐added‐intellectual‐coefficient as a measure of intellectual capital coefficient. This study uses a sample of 158 Indian energy‐sector firms covering the period 2010–2022. The panel‐corrected standard error technique is employed to test the aforementioned relationship because it corrects for heteroskedasticity and cross‐sectional dependence in panel data, providing reliable standard errors and more accurate relationship estimates. The results provided empirical evidence of a significant negative association between the working capital management and the intellectual capital coefficient for energy sector firms in India. Further analysis shows that the capital employed and structural capital coefficients are the intellectual capital components most closely associated with variations in working capital management, indicating that firms with higher intellectual capital largely reflected through these components tend to suggest tighter working‐capital cycles and optimum utilization of funds.