Efficient management of working capital and weighted average cost of capital
by Amarjit Gill; John D. Obradovich; Marcia Whittaker
International Journal of Accounting and Finance (IJAF), Vol. 10, No. 4, 2020

Abstract: This study explores relations between the efficient management of working capital (WC) and the weighted average cost of capital (WACC) using data spanning 2014-2019 for 9,807 publicly traded US manufacturing firms. Its co-relational and non-experimental research design involves a Tobit model as a robustness check to overcome potential inconsistencies arising from ordinary least squares. Its results suggest that the efficient management of WC played varying roles in reducing the WACC for the surveyed firms over the period. For the seven elements of efficient management of WC that we investigated, analysis shows that net operating WC, current ratio, and cash flow reduce WACC by 1.70%, 0.60%, and 0.30%, respectively, for the examined firms. These results extend the literature on concerning factors that reduce cost of capital. Financial managers, investors, financial management consultants, and other stakeholders may find them useful. This study may also encourage further studies of efficient management of WC and WACC using data from other industries, periods, and countries.

Online publication date: Mon, 08-Nov-2021

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