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Financing of Working Capital Requirement and Profitability: Evidence from Borsa Istanbul Chemical, Petroleum, Rubber, and Plastic Sector

In: Financial Management from an Emerging Market Perspective

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  • Burcu Dincergok

Abstract

This study investigates the relationship between the maturity of debt used to finance working capital requirement and profitability. The firms in Borsa Istanbul chemical, petroleum, rubber, and plastic sector are analyzed using two-step generalized method of moments (GMM) method over the 2005-2015 period. The results show a concave-shaped relation between the short-term financial debt that is used to finance the working capital requirement and profitability. The ratio of short-term financial debt increases profitability up to a point, and over this point, the effect of short-term debt on profitability is found to be negative. Furthermore, for financially flexible firms, the breakpoint of the short-term financial debt and profitability relation occurs at the higher levels of the short-term financial debt-to-working capital requirement ratio.

Suggested Citation

  • Burcu Dincergok, 2018. "Financing of Working Capital Requirement and Profitability: Evidence from Borsa Istanbul Chemical, Petroleum, Rubber, and Plastic Sector," Chapters, in: Soner Gokten & Guray Kucukkocaoglu (ed.), Financial Management from an Emerging Market Perspective, IntechOpen.
    • Handle: RePEc:ito:pchaps:140678
    DOI: 10.5772/intechopen.72760
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    More about this item

    Keywords

    working capital requirement; profitability; short-term financial debt; chemical; petroleum; rubber and plastic sector; GMM method;
    All these keywords.

    JEL classification:

    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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