The Impact Of Working Capital Management On Corporate Performance In China(A Comparative Analysis On Ownership Control Specifics)

Working capital management refers to the firm's investment in short-term assets.The management of working capital is important to the financial health of business of all types and size and it efficient and effec-tive management is highly relevant to the success of the firm.While the short-term liquidity effects of working capital management are straightforward to the determined,it is an empirical question of how it af-fects corporate performance.PURPOSE-The purpose of the empirical research paper is to analyse the impact of working capital man-agement on corporate performance(profitability)using different ownership control specifics.We make a comparative analysis between listed non-financial private enterprises and state-owned enterprises in China and to determine if indeed the management of working capital is critical and aggressively considered to im-pact corporate performance in these ownership control specifics.We also make good use both linear and non-linear(inverted U-shaped)relationship between corporate performance and working capital.DESIGN/METHODOLOGY APPROACH-The paper includes some theoretical and conceptual frame-work of working capital management as well as previous pieces of literature and empirical analysis with data from a sample period from 2010 to 2016.To perform our comparative analysis to determine whether work-ing capital management impact positively on corporate performance taking into consideration each ownership control specific,we utilized a panel data econometrics in a pooled regression,where time series and cross-sectional observation were combined and estimated.To provide a clearer and concise picture of our analysis we separate our data analysis to enable us to determine the significant levels.The Day's Net Trade Cycle(DNTC)has been utilized as a measure of the working management whereas the Tobin's Q measured as the ratio of market value of equity and the book value of debt to the book value assets is used as a proxy for a corporate performance(profitability).To bring up more robustness to our main empirical results,we changed the main dependent variables from Tobin's Q to Accounting Profitability with other control variables remaining unchanged.FINDINGS-The comparative analysis reveals both a linear relationship and non-linear relationship between corporate performance and working capital management but most importantly our research focus much at-tention on the non-linear relation with optimal levels distinction between private enterprises and state-owned enterprises.We found a turning point of optimal level at 19.72 days for private enterprise as compared to a turning point of optimal level at 18.58 days for state-owned enterprise.The levels of significance achieved with the empirical analysis also reveals that the management of work-ing capital is aggressively considered in the private enterprises comparative to state-owned enterprises for the sample period under consideration and one of the main qualitative reason among others giving maybe the restriction pattern of access to credit as compared to state-owned enterprises where the government supports are in abundance.LIMITATION-The main limitation of the research paper will be the specific statistical method and ap-proach that will be used to verify the proxies and model.Furthermore,industrial specific-related problems such as qualitative measures are not considered.