The Effects of business cycle on the working capital management

Business cyclical fluctuations do not only affect the general economy, but also the entire business units, including even the small enterprises and firms. Because of this, these fluctuations play an important role in decision-making processes of the firms. Working capital decisions are so vital for many of the firms. Working capital -that is the current assets or short-term investments of a firm, is one of the most important key elements affecting profitability and liqudity of that firm. As a result of the effects of cyclical fluctuations over the working capital and its elements, firms must take into account and analyse these fluctuations very carefully. The lack of researches about the effects of business cyclical fluctuations on working capital has channeled us to make a comprehensive research about this subject. The effects of cyclical fluctuations on working capital management have been searched on the firms manufacturing durable goods during the years 1992- 2002 by using econometric models. Our study consists of three parts. In the first part, titled "The Coverage and The Analysis of Business Cycle"; business fluctuations, their specifications and reasons about why they have international characteristics have been discussed. Moreover, under the title "Business Cycle in The Theory of Economics"; the position of business cycle in The Theory of Economics has been discussed and the other business cycle theories have been researched. In the second part of our study; the effects of cyclical fluctuations on the working capital management decisions have been searched and definitions about working capital have been presented. Then, working capital liquidity has been measured with both traditional and modern approaches and the effect of working capital on the firm value has been examined. In this part, effects of financial crises on working capital management have been analysed and the strategies to be implemented during financial crises have been suggested. Based on the considerations about the first and the second parts of the study, an econometric analysis has been made in the third part In this part, the effects of cyclical fluctuations, durable goods expenditures and foreign exchange, interest and inflation rates on the firms manufacturing durable goods have been searched. Within the analysis, stationarity of the dependent and the independent variables has been tested. Then, by the multiple lineer regression analysis, level of changes in the independent variables have been presented according to the dependent variables. Otherwise, granger test for causilities has also been applied and the roles of the independent variables on changes in the dependent variables have been analysed through a dynamic approach.