Efficient working capital management, bond quality rating, and debt refinancing risk

Abstract

Purpose

The purpose of this paper is to investigate the impact of efficient working capital management (WCM) on a firm’s bond quality ratings (BQR) and debt refinancing risk (RFR).

Design/methodology/approach

To fulfill its purpose, this study adopted a co-relational research design. Additionally, the COMPUSTAT of Wharton Research Data Services was used to collect data from American production firms for a period of five years (from 2013 to 2017).

Findings

The results of this study suggest that efficient WCM does, in fact, play a role in improving BQR of American production firms. Furthermore, the findings go on to suggest that efficient WCM plays a very little role in reducing RFR for American production firms.

Research limitations/implications

This is a correlational study that investigated the presence of an association between efficient WCM and firms’ BQR and between efficient WCM and RFR. However, the two do not necessarily share a causal relationship. Moreover, the findings of this study may only be generalized to firms that are similar to those that were included in this research.

Originality/value

This study contributes to the literature on financial factors that improve a firm’s BQR. Firms should consider maintaining an optimal net working capital as it improves BQR. Moreover, the findings of this study may prove useful for financial managers, investors, financial management consultants and other stakeholders.

Citation

Gill, A., Amiraslany, A., Obradovich, J. and Mathur, N. (2019), "Efficient working capital management, bond quality rating, and debt refinancing risk", Managerial Finance, Vol. 45 No. 7, pp. 869-885. https://doi.org/10.1108/MF-06-2018-0269