Research On The Impact Of Excess Working Capital On Firm Value

Working capital is the foundation of the firm's survival and development.It plays a vital role in expanding the scale of production,increasing the profitability of enterprises and avoiding operational risks.Practice has proved that effective working capital management is conducive to creating more firm income in a highly competitive market.However,inefficient working capital management is likely to increase the firm risk,and even lead to greater losses and bankruptcy.Based on the non-linear relationship between working capital and firm value,this study constructs an asymmetric model and takes 972 listed companies in Shanghai and Shenzhen A-share market in China from 2007 to 2016 as research samples.Firstly,this study explores the relationship between excess working capital and firm value in the whole sample.Secondly,from the uncertain economic policy situation,the impact of excess working capital on firm value is analyzed and studied.Finally,for companies with excessive working capital,the study explores whether firms which use the capital investment channel to conduct working capital management to enhance firm value.In order to ensure the reliability of the research conclusions,the study conducted a robustness test.The empirical results show that there is a significant negative correlation between positive excess working capital and firm value.This means that in a specific operating cycle,firms appropriately reduce the working capital,which is conducive to the promotion of the firm value.And there is no obvious correlation between the negative working capital and the firm value.Economic policies can significantly affect the relationship between excess working capital and firm value.Specifically,if economic policies are full of uncertainty,reducing excess working capital can significantly increase the f rm value,and the positive value effect is more obvious.In addition,through the mediation effect test,this study has found that capital investment has a certain intermediary role which is beneficial to adjust the relationship between excess working capital and firm value.The specific performance is that if firms hold positive excess working capital,then it can increase capital investment to reduce excess working capital.Moreover,the value effect of working capital management and the intermediary effect of capital investment are more significant when economic policy uncertainty is high.That is to say,effective working capital management can reduce the negative impact of policy uncertainty on investment to a certain extent,and thus enhance the firm value.The conclusions of this study can attract firms'attention to working capital,and enrich the theory of working capital research.