Impact of Innovation on the Efficiency of Working Capital Management

This research examines the influence of firms’ innovation activities on the efficiency of their working capital management (WCM). We have used R&D expenditure to represent innovation. The cash conversion cycle (CCC), inventory days (IND), accounts receivable days (ARD), and accounts payable days (APD) represent the efficiency of WCM and its components. The study analyzes 2968 firm-years using fixed-effect regression. The findings show that firms with higher innovation have longer CCC, IND, ARD, and APD. Innovation-focused firms should assess the net benefits of innovation considering WCM inefficiency. Further, firms may maximize the benefits of their innovation initiatives through efficient WCM