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Efficient Working Capital Management and the Cost of Debt

Author

Listed:
  • Amarjit Gill

    (Edwards School of Business, University of Saskatchewan, Canada)

  • Harvinder S. Mand

    (University College Dhuri, India)

  • Afshin Amiraslany

    (Camosun College, Victoria, Canada)

  • Neil Mathur

    (College of Management & Technology, Walden University, USA)

Abstract

Studies show that efficient working capital management (WCM) improves bond ratings and reduces the chance of bankruptcy. In the line with these studies, our study tests the relationship between efficient WCM and the cost of debt for micro, small- and medium-sized enterprises (MSMEs) in India. We employed a survey research design (a non-experimental research design) to collect data. The perceptions and judgments of the owners of MSME retail sales and manufacturing firms in India form the basis of our analysis and findings that efficient WCM helps firms reduce their cost of debt. Our findings further show that high levels of inventory turnover and cash management efficiency increase the firm’s ability to reduce the cost of debt by 12.30% and 4.60%, respectively. This study contributes to the literature on the relationship between efficient WCM and the cost of debt. Indian retail sales and manufacturing firms should consider improving their inventory turnover and cash management efficiency to reduce the cost of debt.

Suggested Citation

  • Amarjit Gill & Harvinder S. Mand & Afshin Amiraslany & Neil Mathur, 2020. "Efficient Working Capital Management and the Cost of Debt," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(2), pages 131-149, September.
    • Handle: RePEc:ijb:journl:v:19:y:2020:i:2:p:131-149
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    References listed on IDEAS

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    More about this item

    Keywords

    Working capital management; inventory turnover; accounts receivable turnover; accounts payable turnover; cash conversion cycle; cash management efficiency; cost of debt;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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