Empirical Study Of The Dominating Influencing Factors Of Chinese Listed Companies' Working Capital

It is very important for companies financial workers to manage their internal capitals, among which working capital is the most fluently and frequently used one. It is like the flowing blood in the body, which affects the body's energy and vigor. Therefore, paying more attention to the working capital management and deeply researching in the working capital takes parts in the company financial management activities. Among the existing researches about working capital, there have been many studies in analyzing about the concept and configuration of the working capital. In west countries, empirical studies about working capital management have been very comprehensive and in-depth,which makes more and more western company financial managers actively control and make full use of their working capital. While in our country, most studies investigate the working capital in theory, which are mostly about the concepts or the makeup of the working capital. And the points are mostly about the working capital financial strategy management, which is very difficult to be established by quantity. So it's very difficult for the financial managers to put it into practice, which induce our financial managers not paying enough attention to the effective and reasonable use of working capital. There have also been empirical studies about working capital in our country, but those existing empirical studies especially about our listed companies is very limited in quantity and profundity, which is unsuitable with the status and function of the working capital management in company. Few are dealing with the dominating influencing factors of working capital, while these factors are the points by which connecting the financial managers with the operating process in the company. Nowadays, more and more listed companies are transferring their attention from pursuing for the largest profit to managing the company's entire value-chain, so that, being a finance manager, one of his vital works is to know how and where to maintain or improve the efficiency of betaking working capital. Basing on the existing studies about working capital management and the data of listed companies in China's Hu & Shen stock markets, this thesis analyses the dominating influencing factors of Chinese listed companies'working capital.There are external factors and internal factors which will be discussed in this thesis.Firstly, this thesis analyses the dominating effective factors in the abstract. Secondly, it picks up some indexes to reflect those factors above, which can be gained directly from the listed companies'financial balances. In this thesis, all financial datas are gained from the CSMAR data base and the www.cnlist.com, and the listed companies which have been ST or can not release their financial balances are elimated from the cases. The thesis picks up the financial datas of 60 listed companies from 1998 to 2005. At last, based on those cases in Hu & Shen stock markets, the thesis analyses the relationship between those factors and working capital. This study adopts one-way correlation analysis and multi-way correlation analysis. The version of statistical software is SPSS 13.0. Simultaneously, this study classifies the listed companies as three types as follows, 20 cases with best financial statement, 20 cases with ordinary financial statement and 20 cases with worst financial statement, which is classified by the www.stockstar.com , which are scored by evaluating the profitability, ability to repay the debts, growth and cash flowing, etc. By this way the study compares the different factors of different type listed companies. This thesis gains conclusions as follows: first, those external factors make little effect to the quantity of working capital in listed companies of all types, like the inflation ratio and deposit rate, and so on, while the dominating influencing factors are mostly of the companies'own, like constructiong of capital, inventory management and sales capability and so on; second, the dominating influencing factors of working capital are the debt ratio, degree of operating leverage (DOL), day sales outstanding (DSO), asset turnover and inventory turnover. And the factors of different type listed companies are different. For example, the dominating influencing factors of companies with best financial statement working capital are debt ratio, return of equity (ROE), day sales outstanding (DSO) and inventory turnover; the dominating influencing factors of companies with ordinary financial statement are debt ratio, degree of operating leverage (DOL), day sales outstanding (DSO), asset turnover and inventory turnover, the dominating influencing factors of companies with worst financial statement are debt ratio, return of equity (ROE), degree of operating leverage (DOL) and cash flows from operations ratio. This shows that working capital of all types listed companies are affected by the debt ratio, which reflects the construction of company's capital. This study also finds that companies with better financial statement pay more attention to the working capital turnover and efficiency, because the day sales outstanding (DSO), asset turnover and inventory turnover indexes are mostly used to analyse or evaluate the working capital turnover efficiency, while those with worse financial statement pay more attention to the profit ability and risk which have been existed of their own, for example, the profitability of company is always estimated by the return of equity (ROE) index, while the degree of operating leverage (DOL) index is a mostly common used index reflecting the operating risk of the company. This study also finds that generally, the working capital management of listed companies in our country is passively affected by those dominating influencing factors, most companies prefer the cost of lack of working capital to the opportunity cost of maintaining working capital,which means the listed companies in our country mostly take the conservative funds management strategy. According to this study, the conclusions will provide some valuable guide and suggestion for listed companies'working capital management. For example, all companies should pay first attention to the debt ratio, which reflects how many assets are got by liability. This will influence the following working capital management. The financing managers will manange their working capital more effectively by control well the most influencing factors above, which come into being according with the operating and managing process of the companies. Finally, those conclusion means the financial managers should pay more attention to the entire value chain, which ultimately affects the dominating influencing factors this thesis gains above.