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Global economic integration for developing countries through economic liberalization and democratization is accepted as the best way to overcome destitution and discrimination .At this point, the industry sector plays a significant role.
There are some advantages to work with high inventory levels such as preventing customer losses caused by not having enough stock level and protecting against price volatilities .
However, the high inventory and loose trade credit policies lead to the locking of the money to the working capital .
This study, which investigates the impact of the WCM on the profitability of Turkish industrial firms, is considered to contribute on the determination of working capital investment levels of these firms, determination of the distribution among the working capital components, effective use of scarce resources, and resource supply and sustainability of future investments by applying a working capital that will increase the profitability.
There are a number of studies covering the developed countries in the literature, while there are limited studies covering the emerging countries.
WCM is important due to the effect on profitability of firm, firm’s risk, and the firm value .
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.Effective WCM is a significant factor affecting the survival of the firm, the continuity of its activities, and the maintenance of liquidity and profitability .Excessive working capital like inadequate working capital has led many businesses to fail and prevent their growth .In this sense, working capital components (WCC) are cash, cash equivalents, inventories, accounts receivables, and accounts payables.Investment in the working capital components is important for all industrial enterprises to be powerful financially.According to the World Bank data, the industry sector’s share in GDP is 32% .The share of the industry sector in exports is around 92% .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 .Deferment of payments to suppliers can enable the firm to evaluate the product bought and may be a cheap and flexible funding source.But, postponing payments can be expensive, if the firm has got a discount for early payment .