Literature Review Of Working Capital Management

Deferment of payments to suppliers can enable the firm to evaluate the product bought and may be a cheap and flexible funding source.

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The financing problem is one of the most important problems faced by these firms.

These firms need to be able to use their existing resources effectively and be self-sufficient because of the scarcity of funding resources and the insufficient accumulation of capital.

While lower investment in the working capital expressed as aggressive working capital policy is associated with higher returns and higher risk, more investment in the working capital expressed as conservative working capital policy is associated with lower return and lower risk [14].

The firm has to choose between aggressive and conservative working capital policies depending on its purpose [15].

In this case, the level of accounts payables of the firm may affect the firm’s profitability.

The style of WCM may have a considerable influence on the profitability, risk, and liquidity of the firm [12].On the other hand, high inventory levels and flexible credit sales policy can contribute to increased sales.Because sales on credit allow the customer to examine the product before paying, it may increase sales [9].According to the World Bank data, the industry sector’s share in GDP is 32% [2].The share of the industry sector in exports is around 92% [4].WCM is important due to the effect on profitability of firm, firm’s risk, and the firm value [18].In this context, this study aims to reveal the tradeoff between WCC and firm’s profitability by using the data of the firms listed on Borsa Istanbul (BIST) Industry Index in Turkey.The firm that invests more in current assets is more liquid than a firm that does not invest.This will reduce the firm’s liquidity risk, while decreasing overall rate of return, because the return of current assets is less than the return of other assets [13].It is anticipated that the study will contribute to the literature in terms of comparing the relationship between the WCM and profitability of industrial firms of emerging countries like Turkey.It is thought that the study with these aspects will be beneficial to both managers and researchers.

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