The Empirical Research On The Relation Between Working Capital And Performance Of The Small And Medium-sized Enterprises Of China

As an indispensable financial resource, the scale and operating efficiency of working capital have great influence on corporate performance. Small and medium-sized enterprises are mainstream force to expand employment. While facing the more and more serious financial crisis, how to select the most suitable working capital structure and policy to enhance the earning ability and survive in the stormy environment is the key point of this paper.From the study both at home and abroad, the influence of working capital on performance can be concluded as the following two aspects: the influence of working capital structure on performance and the influence of working capital policy on performance. This paper begins with the basic theory of working capital and performance, and then adopts empirical analysis to prove the relation between working capital and performance.First, we use descriptive methods and regression analysis to study the influence of working capital structure on performance. The study chooses 268 companies listed in the plate of small and medium-sized enterprises in the Shenzhen stock exchange, based on the financing data of the year of 2003 to 2008. Then, the paper divided these companies into 9 industries, and gives a descriptive analysis of the situation of working capital and performance of these small and medium-sized enterprises in China during these years. Also it makes an empirical analysis to the relationship between working capital structure and firm's performances. Through the regression results we can see that the working capital structure of Chinese firms is little related to the profits.Then, we also use descriptive methods to study the influence of working capital policy on performance. According to the dividing method above, we calculate current assets proportion and current liability proportion of these 9 industries. From the statistics we can get different working capital policies of these small and medium-sized enterprises in China. We find that our small and medium-sized enterprises are inclined to use stable working capital policy and intermediate working capital policy. Then, we choose 2 industries which are representatives of stable working capital policy and intermediate working capital policy. Based on the line graph, it can be seen that the performance with intermediate working capital policy is better than with stable working capital policy.At last, it is safe to conclude that keeping a reasonable working capital structure and policy is the main access to enhance the performance of a company. And we also make some suggestions to improve the management of working capital structure and policy.