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An Empirical Study On Working Capital Management And Corporate Profitability From The Perspective Of Financing Constraints

Posted on:2017-02-22Degree:MasterType:Thesis
Country:ChinaCandidate:Y WangFull Text:PDF
GTID:2309330488975404Subject:Business management
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Working capital management is one of the important contents of modern enterprise financial management. Working capital is the capital which is the highest frequency of daily production and operation activities. Whether It can be effectively managed that directly determines whether the production and operation activities can be carried out in an orderly manner. However, due to the imperfections of the capital market, the cost of obtaining funds from outside is significantly higher than the cost of internal funds, resulting that the enterprises prefer to use their own money. Therefore, it is very important for enterprises to carry out effective working capital management. So this paper mainly studies the influence of working capital management on the profitability of the enterprise, and studies the influence of financing constraints on the relationship between the two.In this paper, working capital management is carried out in two ways to measure, one is working capital turnover period, which was analyzed from the turnover rate; the second is working capital allocation level, further working capital can be divided into financial working capital and operating working capital, judging configuration level respectively.For enterprise profit ability, this paper measure from two aspects of profitability and profit quality, not only from the amount of profitability of the enterprise, but also pay attention to the cash flow from operating activities to create. Moreover due to the presence of financing constraints, the decision-making of enterprises will become more cautious, working capital management’s contribution on profitability has been affected. In this paper, we measure the financing constraints from the two aspects of whether to pay dividends and external financing costs, further study on the effect of financing constraints on the relationship between working capital management and profitability of enterprises.This paper chooses China’s Shanghai and Shenzhen 1674 A-share listed companies during 2007-2014 of 11292 sample data. Preliminary statistics showed that:enterprises with smaller financing constraints, have strong profitability,and their working capital turnover period are relatively short, their working capital allocation level are relatively high, and with a greater proportion of working capital in the financial allocation; and enterprises with larger financial constraints, their profitability is relatively weak, and their working capital turnover are longer, with significantly lower working capital level of configuration, limited working capital more into the business activities.Further research shows that:first, the working capital turnover period of our country’s listed companies and corporate profitability is inverted u-shaped curve relationship, specifically enterprise within a certain scope to shorten the working capital turnover period can contribution to corporate profitability play a positive role, but after exceeding the equilibrium curve continue to shorten the working capital turnover period is no longer able to improve the profitability of enterprises, on the contrary will make enterprise profitability decline; second, after joining financing constraint grouping, further investigation found that financing constraints facing large enterprises, its ideal working capital turnover period is shorter than the lower financing constraints enterprise’s turnaround, and the change of this kind of enterprise’s working capital turnover period the greater influence on the level of profitability and profit quality.According to the empirical results of the whole samples, shorten inventory turnover period, accounts receivable turnover period or extend the accounts payable turnover period, can not only improve the level of corporate profits, but also improve cash flow situation of operating activities, and the management of the receivables turnover is most in need of attention for.both the improvement of working capital turnover period and the improvement of the corporate profitability. After considering the financing constraint factors, study found that for low financing constraints enterprises, accelerating inventory turnover can increase operating activities cash flows and improve the quality of profit, but to some extent, improve the level of inventory can enhance the level of earnings and payables turnover have little effect on the level of profitability, but the extension of credit payable has a significant role in promoting the quality of earnings. For high financing constraints enterprises,to improve the efficiency of working capital turnover, the emphasis should be placed on the inventory and receivables management, speeding up the inventory and the accounts receivable turnover can save the occupation of ftinds, alleviate enterprises subject to financing constraints and improve the profitability of enterprises.In terms of working capital allocation. In this paper, the working capital is divided into financial working capital and operating working capital. The research result shows that both part of the configuration of working capital and profitability is inverted u-shaped curve relationship. This relationship shows that when companies invest in working capital, they need to consider the opportunity cost of this part of the investment capital and the revenue that working capital cycle generated, weigh the efficiency and risk of the investment,determine a reasonable working capital allocation level. And how to allocate working capital investment between the investment and financing activities and the production and operation activities will depend on the efficiency of the two respective business activities.After joining the financing constraints, the results show that enterprises with the higher degree of financing constraints,their ideal operating capital allocation level is lower. In the distribution of working capital structure, the enterprise will first compress the investment of the financial working capital, to ensure the operating capital investment, maintaining the production and operation activities remain stable and balanced. Therefore, enterprises facing larger degree of financing constraints should not only consider working capital investment rationality, but also focus on working capital at a reasonable allocation between investment and financing activities and production and operation activities, in order to reduce the loss caused by fluctuations in investment spending caused by the financing constraints,and to improve the profitability of the enterprise.
Keywords/Search Tags:Profitability, Working capital management, Working capital allocation level, Financing constraints
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