Efficient Working Capital Management and the Cost of Debt

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 mediumsized enterprises (MSMEs) in India. We employed a survey research design (a nonexperimental 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.