Analysis Of The Relationship Between Working Capital Management And Firm Value

The value of an enterprise is often associated with the financial decisions of the company’s capital investment strategy and long-term financing decisions of strategic significance. The level of the financial control, especially the level of working capital management determine the achievement of a company’s strategic goals. Working capital management is the management of the implementation of the current assets and current liabilities according to its working capital management strategy. It belongs to a short-term financial management and involves all aspects of production and operation, and associated with short-term investment and financing activities.The decision-making of working capital management is closely related to all the aspect of the production and operation of an enterprise.Working capital management as an important activity in the corporate financial management, directly impact on the enterprise value and determines the success of the business. But the analysis of working capital management is still rare in the modern financial management theory. China’s research of working capital management is late and not yet in-depth and primarily focused on management of current assets, current liabilities, capital held operations and finance policy. The research of working capital management, especially working capital management and the value of the company is rare. At present, many companies have not yet established the specification working capital management system, so,how to manage working capital scientifically, and how to develop working capital management policies in order to promote the healthy and stable is important. Therefore, it is of great significance to analysis the relationship between working capital management and enterprise value to enhance the value of the company. The real estate business is a capital intensive industry, the analysis of the relationship between working capital management and enterprise value has important practical significance, so we take the real estate industry as an example to study the relationship between working capital management and enterprise value.Firstly, we reviewed domestic and foreign literature on working capital management and working capital policy and theory of working capital management and enterprise value. Secondly, we selected proxy variables of enterprise value and working capital management, and collected data of thirteen consecutive years of42listed real estate company from the CSMAR database from2000to2012. using sample data we have established a panel data model of corporate value and working capital management. We found that in recent years, China’s listed real company’s working capital allocation rate is high by descriptive statistics analysis. Panel data model show that the real estate industry operating capital allocation rate, accounts receivable turnover, inventory turnover have a negative correlation with enterprise value,the real estate industry accounts payable turnover, corporate working capital investment policy have a positive correlation with the enterprise value. Finally, we put forward the principle of working capital management of listed real estate companies and countermeasures to improve the efficiency of working capital management.