Role of Financial Management Practices in Improving Organizational Performance: An Empirical Investigation

Abstract

This study empirically examines the role of financial management practices (FMPs) in improving organizational performance across publicly listed and private firms in India. Drawing on primary survey data from 398 senior financial executives and chief financial officers (CFOs) spanning manufacturing, services, and trading organizations, supplemented by archival financial data from 210 listed firms over fiscal years the research employs structural equation modelling (SEM), hierarchical multiple regression analysis, panel data regression with fixed effects, and mediation analysis to test a theoretically grounded set of hypotheses. Financial management practices are operationalised across five dimensions: capital structure management, working capital management, investment appraisal practices, financial planning and budgeting, and financial reporting quality. Organizational performance is measured through both financial indicators (return on assets, return on equity, Tobin's Q) and non-financial indicators (balanced scorecard dimensions). Results reveal that all five FMP dimensions significantly and positively predict organizational performance: capital structure management (β = 0.34, p < 0.001), working capital management (β = 0.41, p < 0.001), investment appraisal practices (β = 0.38, p < 0.001), financial planning and budgeting (β = 0.43, p < 0.001), and financial reporting quality (β = 0.31, p < 0.001). Mediation analysis reveals that financial decision-making quality partially mediates the FMP–performance relationship. Firm size, industry type, and managerial financial competence significantly moderate these associations. The study advances the resource-based view of organizational performance by positioning superior FMPs as inimitable, value-creating capabilities and offers actionable guidance for financial executives, board audit committees, and policymakers.