Impact of Loan Accessibility on Working Capital Management and Profitability: Comparative Study of Family Versus Non-Family Firms

Abstract

This study is conducted to identify the direction of the relationship between working capital management (WCM) and firm performance of the non-financial sector of Pakistan from 2009 till 2018. This has also looked at the effect of restricted access to loan on the WCM- Profitability relationship. The findings confirmed that restricted loan accessibility impacts the WCM-Profitability relationship. The comparative analysis demonstrated that financially constrained firms are mostly non-family firms that are new, growing, smaller in size, face high risk, maintain high liquidity and tangibility ratios than non-constrained firms. Further, the working capital levels of financially constraint firms is lower because of high operating expenses and greater capital rationing. Managers and scholars may use these findings for the administration of their working capital policies in order to avoid the financial cost and create more opportunities for financial accessibility which is further beneficial for making informed investment decisions, yielding higher profits that contribute towards sustainable growth.

Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure

“…Companies with more cash balances have more tendency towards debt specialization, especially during the period of crisis [34]; both smaller and larger companies maintain high cash balances. Small companies often have restricted access to the debt market, so they keep more cash balances to meet their working capital requirements [35]. This notion is supported by the pecking order theory, where companies are maintaining a larger amount of cash, utilize their internal funds first, and then go for debt financing.…”