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Assessment of the Impact of Working Capital Management on Russian Firm’ Operational Efficiency at Different Life-Cycle Stages

Student: Aleksandra Yamenkova

Supervisor: Ekaterina Evgenievna Kuzmicheva

Faculty: Faculty of Economics

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

The efficient working capital management is one of the main conditions for successful activity of a company. The purpose of working capital control arises in all industries and at different stages of the life cycle. The goal of the final qualifying work is to conduct an empirical analysis of the relationship between working capital management criteria and the operational efficiency indicator of Russian firms, considering their life-cycle stages and their industry sectors. The research is based on the data of 3362 Russian firms operating in various industry sectors (the first 10 economic activities according to NACE Rev. 2), during the period of 2013 to 2018. To achieve the goal of the research, methods of regression analysis of panel data were used, as well as the methodology of life-cycle stages identification, proposed by V. Dickinson. The research results confirmed the existence of a significant linear relationship between the cash conversion cycle (the financial cycle duration) , all its elements and the company's operational efficiency indicator – the return on assets. Across the entire sample of companies, it was revealed that the linear relationship between the return on assets with the financial cycle, the inventory turnover in days and the receivable turnover in days is reversed, while with the payable turnover in days it is direct. In the context of selected industries, the inverse linear dependence of the return on assets on the financial cycle duration was also confirmed, while different signs of the coefficients were observed for its elements. In addition, it was concluded that, companies should aim their financial cycle to zero to increase their operational efficiency, and that the changes in the working capital have stronger effects on growing companies than on mature companies. The revealed statistically significant quadratic relationship between the return on assets and the financial cycle duration enabled the researcher to determine the optimal values ranges of the latter for each branch considering the growth and the maturity stages. It seems that if the Russian organization will adhere to the recommended intervals and will not go beyond them, it is most likely to be able to increase the effectiveness of its activities and to provide the required liquidity level. Moreover, some recommendations on improving the quality of working capital management were provided for eight Russian companies from different industry sectors and at the growth and the maturity stages. The findings of the study can be used by financial managers in appropriate working capital management decisions. A well-designed working capital management strategy considering industry specifics and the firm's life-cycle stage will contribute to the growth of the firm’s operational efficiency and increase in business value.

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