Determining the Influences of Macroeconomic Variables on Working Capital through Artificial Neural Network Modeling: The Case of Turkey

Sedat Yenice

doi:10.5539/ibr.v8n8p14

Abstract

Finance and economics literature includes many attempts to determine the factors influential on working capital and working capital management. The present study aims to find out the relationships between working capital and macroeconomic variables. To this end, 11-year financial statement data of 128 companies traded at Borsa Istanbul from the 2003 to 2013 period were examined, and artificial neural network modeling was administered to the data obtained from these financial statements. The level of working capital, return on working capital, and cash conversion cycle were used as dependent variables and analyzed separately. Macroeconomic variables such as inflation, export index, import index, foreign exchange rate, interest rate, stock market index, gross domestic product, and gold prices were used as independent variables. The research findings show that there are relationships between working capital and macroeconomic variables; working capital is influenced by macroeconomic variables; the level of working capital is influenced most by export index and stock market index; return on working capital is influenced most by import index and stock market index; and cash conversion cycle, which represents working capital management, is influenced most by benchmark interest rate, gold prices, and foreign exchange rate.

Highlights

Working capital is defined as short-term assets that are needed by enterprises to continue their activities
The results of this study indicate that cash conversion cycle, company’s market power, future sales, and country risk are influential on the way Latin American companies manage their working capitals with significant differences among countries in the region
As stated in the previous chapter, artificial neural network analysis was used for determining the influences of macro-economic variables on working capital

Summary

Introduction

Working capital is defined as short-term assets that are needed by enterprises to continue their activities. Working capital management is crucial for enterprises to continue their activities and increase their profitability. Working capital management is important to maximize the value of an enterprise because working capital investments are made in substantial amounts; managers allocate long time to working capital management; and the level of working capital is closely associated with volume of business and profitability. In broad terms, working capital consists of current assets. Cash, accounts receivable, and inventory which make up current assets are the elements of working capital. These elements need to be managed separately to ensure an effective working capital management

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