Internal Financial Management and Profitability Across Capital and LaborIntensive Industries

Panel Evidence from Indian Steel and Textile Firms

सार

This study examines the relationship between internal financial management practices and firm profitability in structurally divergent industries, focusing on Indian steel and textile firms. Using panel data from 50 listed manufacturing companies over the period 1995-2023, the study analyzes how liquidity management, working capital efficiency, leverage structure, and dividend policy influence return on assets (ROA). Panel regression results indicate that liquidity, measured by the current ratio, and operational efficiency, proxied by inventory turnover, are positively and significantly associated with profitability. In contrast, leverage, captured by the debt-equity ratio, demonstrates a significant negative relationship with ROA, suggesting that excessive reliance on debt may erode firm performance. Dividend payout ratio exhibits a positive association with profitability, consistent with signaling considerations, although potential reverse causality cannot be fully ruled out. Robustness checks using alternative profitability measures and diagnostic tests confirm the stability of findings. Sectoral analysis reveals that steel firms are more sensitive to leverage fluctuations, while textile firms rely more heavily on working capital efficiency. The findings highlight the economic significance of internal financial policy decisions and underscore the importance of industry-specific financial strategies in sustaining firm profitability.