The Influence Mechanism Of Working Capital Management To Corporation Value Of Listed Construction Companies

Working capital management is an important part of corporate financialmanagement, and is related to corporate solvency, profitability and risk control ability.Survival and development of enterprises largely depend on the pros and cons ofworking capital management situation, and as Smith said, working capital managementplays a vital role in the risks and profits of the enterprise. Strengthen working capitalmanagement is the key to prevent the risk of capital chain, so it is a must to reinforcethe management of short-term assets and short-term liabilities. Competitive strategy is aset of rules for enterprises to gain competitive advantages based on market changes andinternal resources, and it is not only the guiding principle of daily operating activities ofenterprises, but also the programmatic document which leads the corporate futuredevelopment. Hence competitive strategy is the determination of the success ofcorporate operating activities and has a very important impact on working capitalmanagement.However, in the current study towards financial management theory, domesticscholars have been more concerned about the impacts of working capital turnoverefficiency on firm performance. Few studied on working capital management situationsfrom the perspective of competitive strategy. For the configuration level of workingcapital, most researches focus on isolated several aspects such as cash, accountsreceivable, inventory and so on. For the choice of working capital management strategy,theory researches still remain in the normative analysis, and empirical researches havebeen in infancy and the depth and breadth are far inferior to foreign countries. So far,the theory has not yet come to conclusions about the consistency of working capitalconfiguration level and management strategies under different competitive strategies.This situation is clearly not consistent with the extremely important role of workingcapital management in financial management.In addition, working capital managementpractices in our country did not attract enough attention, a large amount of companiesdo not have a clear working capital management strategy and configuration ratio, whichis the major reason of the low level of dmestic corporate fund management. Therefore,in order to achieve better long-term performance, how to develop appropriate workingcapital management strategy and how to maintain a reasonable working capitalconfiguration ratio have increasingly become a common concern of theory and practice. The main purpose of working capital management is to formulate appropriateinvestment strategy and working capital financing strategy to maintain an idealconfiguration level (optimal configuration ratio of working capital) of all components ofworking capital through the implementation of effective management activities. AsLamberson said, excellent financial managers have devoted a lot of efforts in thinkingabout how to make the non-optimized current assets and current liabilities configurationlevel optimization into the desired configuration level. The ideal configuration to ensureadequate levels of both liquidity and safety of working capital, but also to improve theprofitability and liquidity of working capital, which requires financial managersimplement ongoing and effective management towards different parts of workingcapital in order to achieve the ultimate goal of maximizing corporate value under therisk and return trade-off concept.Author accomplish some tasks on the basis of literaturecollection and analysis. Firstly complete the theoretical framework of competitivestrategies, working capital management and corporate value. Secondly, use panel datamodel to conduct empirical analysis of competitive strategy types listed constructioncompanies implemented, and on the basis of this, analyze the status of working capitalmanagement strategy under four competitive comparative.Thirdly, analyze investmentstrategy and financing strategy differences as well as compatibility in working capital ofdomestic listed construction companies under different competitive strategies. Then,study the relationship between working capital management and corporate value withdifferent competitive strategies in order to find the best working capital managementstrategy and the optimal level of working capital configuration. Finally, analyze thefactors affecting optimal level of working capital configuration under differentcompetitive strategies, and provide guidance for domestic listed construction companiesto establish the working capital policy and adjust the working capital ratio.The results show several points. First, under different competitive strategies,working capital management situation of the listed construction companies (the ratio ofnet working capital allocation, working capital turnover and turnover efficiency) has asignificant difference, the construction companies with implementation ofdifferentiation strategy and cost leadership strategy have relatively conservativeconfiguration levels of working capital, however the companies which have nodominant strategy are more aggressive. Second, under different competitive strategies,working capital management investment strategy and financing strategy are totallydifferent, as well as the compatibility of investment and financing, Only the construction companies with differentiation strategy have a better compatibility on theoverall investment and financing working capital management strategy, whileinvestment and financing strategies adopted by most other companies do notmatch.Third, under different competitive strategies, aggressive degree of investment andfinancing working capital management strategies has different impacts on corporatevalue, but the best working capital management strategies is moderation type. Underdifferent competitive strategies, optimal configuration levels of net working capitalshow a significant difference, the optimal configuration of the net working capitalratio is minimum (smallest share of working capital with the largest enterprise value)with the differentiation strategy, followed by the cost leadership strategy, then hybridstrategy highest. Therefore, reducing the ratio to meet a reasonable minimum point is aneffective way to increase corporate value. Just like Dannis Damme said,cutting workingcapital will not only create cash, but also promote profitability.Fourth,under differentcompetitive strategies,factors affecting the optimal level of working capitalconfigurations are significant different. Some strategies have more factors influencingconfiguration level of working capital, while some strategies have few. In addition,under different competitive strategies, the same factor towards net working capitalconfiguration ratio has different influence directions and degrees.