Research On Determinants Of Working Capital Requirement And Its Impact On Corporate Performance

Working capital management is an important aspect of financial management, isthe basic embodiment of financial operation and also the important basis of measuringshort term debt paying ability of a company.The traditional working capital management is the company’s current assets andcurrent liabilities management. With the continuous improvement of the managementlevel of enterprises, working capital management ideas no longer emphasizes theoverall current assets and current liabilities matching management, but focus on themanagement of flows assets with no income and current liabilities with on cost.The modern working capital management theory is that reducing the occupationof cashes used on the liquidity with on income, as well as increasing current liabilitieswith no cost, and extend the time of the repayment of debt without cost flow. Themost simple modern working capital management demand formula: working capitalrequirement=accounts receivable+inventory-accounts payable.In recent years, the foreign researchers has done a lot of research about theworking capital management, but Chinese scholars started late about the workingcapital management, not to mention on the research of the working capitalrequirement which stands for the modern working capital management theory. Fromthe empirical research conclusions, we can seen that working capital requirement isnegatively correlated with enterprise performance, which means the amount of theworking capital requirement indeed affect the operating results of the enterprise.Therefore, it is necessary to increase the specialized research of working capitalrequirements, which can provide certain suggestions for the enterprise business isdecision-making.This paper is the analysis of economic consequences of the working capitaldemands and its influencing factors. The article chooses samples of manufacturing ofall the A shares in Shanghai and Shenzhen listing Corporation from2006-2010year tostart with empirical analysis. In the third chapter of the general description part, Thepaper includes four aspects list from the net working capital, working capital demandrate the ratio of the working capital demand rate divided by the enterprises operatingincome, and the ratio of the working capital demand rate divided by the enterprisetotal assets to analyze working capital requirements of the whole manufacturingindustry, different industries, different ownership enterprises which selected the listing Corporation for5years.The fourth chapter is the part of empirical analysis. The former empirical partanalyze of the influencing factors about working capital needs,empirical results showthat:1.operating cash flow, time to market, the enterprise debt rate and workingcapital demand rate negatively correlated to working capital requirement;2.the scaleof enterprises and working capital demand rate negatively correlated to workingcapital requirement;3.Tobin Q, operating income growth rate and enterprise workingcapital demand rate does not exist significant correlation to working capitalrequirement;4.different industries of manufacturing have different working capitaldemand rate;5.The working capital demand rate is not the same between thestate-owned holding enterprises and non state holding enterprises. The latter empiricalpart further analyzed the relationship of between working capital demand rate andbusiness performance relationship. The empirical results show that: the workingcapital demand is related to the enterprise performance, which is negatively related tothe represents of the enterprise performance--the net assets yield.