Working capital practices and financing constraints in omani joint stock companies

Earlier studies on joint stock companies identified that a high percentage of Omani joint stock companies are financially constrained. These earlier studies were based on the Kaplan and Zingales measures for measuring financing constraints - which are low dividend payout, high debt equity ratio, positive real sales growth and low interest cover ratio. The present paper tries to identify to what extent the financing constraint can be explained by the working capital practices of these companies. Using data published by Muscat Securities Market the paper analyses working capital behaviour of Omani joint stock companies for the period from 2004 to 2006. The paper first tries to identify whether poor working capital practices is the real reason for symptoms of financing constraints exhibited by these business firms. It next tries to argue that that better working capital management practices such as better management of inventory and accounts receivables may be able to solve the financing constraint problem.