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International Journal of Business and Economics

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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