Usage of blockchain technology and working capital efficiency: Evidence from listed firms in India

Abstract

Working capital management is central to a firm’s operating liquidity, because inefficient handling of inventories, trade receivables and trade payables ties up financial resources in the operating cycle. Blockchain technology (BCT) may improve transaction transparency, traceability, information sharing and coordination among trading partners, yet firm level evidence on its link with working capital efficiency (WCE) is limited. This study examines whether usage of blockchain technology is associated with WCE among non-financial firms listed on India’s National Stock Exchange (NSE) from 2016 to 2024. The sample contains 3,501 firm year observations and includes 389 firms using BCT. BCT usage is a binary, time varying indicator taken from the Compustat Global database and validated through textual analysis of annual reports. WCE is measured mainly by the cash conversion cycle (CCC). Days inventory outstanding (DIO), days sales outstanding (DSO) and days payable outstanding (DPO) are analysed separately to identify the channels involved. A two-step system Generalized Method of Moments estimator addresses the dynamic nature of WCE and the potential endogeneity in BCT usage. Findings suggests that usage of blockchain technology is associated with a shorter CCC (significant at the 10 percent level). This association is driven mainly by a reduction in DIO (significant at the 5 percent level). No significant association is found for DSO or DPO. The findings suggest that blockchain supports working capital mainly through better inventory visibility and coordination, not through changes in customer collection or supplier payment terms. The study extends the blockchain literature from financial reporting and firm performance to the operational and financial management of firms. It has practical implications for managers evaluating blockchain investments in inventory intensive supply chains.