International Journal of Business and Economics Volume 19, No. 2 September, 2020

Efficient Working Capital Management and the Cost of Debt

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.

Keywords：Working capital management, inventory turnover,  accounts receivable turnover, accounts payable turnover, cash conversion cycle, cash management efficiency, cost of debt.

JEL Classifications：G30, G32.

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