Information technology investment and working capital management efficiency: evidence from India survey data

Abstract

PurposeThis study aims to test the relationship between information technology investment (IT_INVEST) and working capital management (WCM) efficiency.Design/methodology/approachThis study utilized a survey research design to collect data from micro, small and medium enterprises (MSMEs) owners in India.FindingsEmpirical results show that perceived IT_INVEST plays a role in improving WCM efficiency by decreasing the inventory holding period and reducing the cash conversion cycle (CCC) in India. A three-stage least square model (3SLS) shows that IT_INVEST decreases CCC directly and indirectly through the inventory holding period, accounts receivable period and accounts payable period. The empirical analysis also shows that IT_INVEST decreases the inventory holding period and CCC by 16.80% and 26.40%, respectively, for the examined firms.Research limitations/implicationsIf MSMEs' owners perceive a higher level of IT_INVEST, then the owners perceive a higher WCM efficiency and vice versa.Originality/valueThis study contributes to the literature on the relationship between IT_INVEST and WCM efficiency. This study may encourage further studies of IT investment and WCM efficiency using data from other industries and countries. MSME owners may find empirical results beneficial to improve WCM efficiency. Moreover, financial management consultants may find results helpful to provide consulting services.