Downstream Supply Chain Relationships And Working Capital Management Performance

The management of working capital is an essential part of finance managementin an enterprise. It is closely related with the realization of enterprise’s financial goaland the value creation. It has a direct effect on the liquidity and profitability. With therapid development of the globalization and the increasing competition in currentmarket, competitions among enterprises gradually give way to competition betweensupply chains. Under such circumstances, enterprises now pay more attenttion tosupply chain parternership. The emphasis on working capital managemnt has in turntransferred to supply chain optimization and management.With the development of market economy in China, the commodity economy hasmoved into an age of excessive economic scale. Under such influence, great changeshave taken place in the circulation industrty, therefore the market tendency hastransmitted from seller’s market to buyer’s market instead. In the current buyer’smarket environment, the common phenomenon in supply chain implicates that theupstream manufacturers rely more on downstream customers. As a consequence, theupstream manufacturers are in an inferior position where the downstream customersare in a dominant position. In working capital management, the downstreamcustomers default on the payment for goods to upstream manufacturers. Therefore,downstream supply chain relationships have both positive and negative effects on theworking capital management. This paper tries to research this problem.In this paper, the study samples are manufacturing companies listed in Shanghaiand Shenzhen stock market’s from2008to2010. This paper describes downstreamsupply chain relationships from three dimensions, as they are customer concentration,relationship stability and relationship symmetry, and adopts working capitalmanagement performance appraisal system based on channel management to make anempirical research on how downstream supply chain relationships affect workingcapital management performance. Based on reviewing the literatures of research onthe supply chain partnership and working capital management, and through a series oftheoretical analysis, this paper put forwards three basic hypotheses. They are,hypothesis1: Customer concentration is positively correlated with days of workingcapital turnover. Hypothesis2: When the supply chain relationship is stable but not symmetric, customer concentration is positively correlated with days of workingcapital turnover. Hypothesis3: When the supply chain relationship is not only stablebut also symmetric, customer concentration is negatively correlated to days ofworking capital turnover. The results of the empirical testing support the hypothesisabove.This paper’s main contribution is combining supply chain management withworking capital management and making an empirical study on how downstreamsupply chain relationships affect working capital management performance. Theprevious studies about supply chain relationship indicate that the relationship insupply chains can create value called relation rent. But only few studies hademphasized on how the supply chain relationship affects business activities towardsthe value creation process. In the study of working capital managemetn, the practicalfield proposes that working capital management should focus on supply chain relationmanagement, but the study based on theoretical perspective is scares. The currentexisting literature only studies the working capital from only one separate aspect.Therefore, this paper tries to study the effect of downstream supply chainrelationships on working capital management performance and reveal different typesof downstream supply chain relationships affect working capital managementperformance in distinguished ways. Therefore, the option towards mechanism ofrelationship value varies according to the strength of the relations between enterprise.