Effect Of Working Capital Management Efficiency On Enterprise Performance

With the acceleration of development, global economy faces more troubles, coupled with the increasingly fierce competition, effective working capital management is becoming more important. After the outbreak of the financial crisis, the profitability of the company general declined, the debt crisis becoming a serious problem, let scholars pay more attention and thought on the issue of working capital management. In recent years, the working capital management performance of listed companies occurred continuing deterioration in our country, the enterprise’s liquidity of funds in degradation, the elements of the business activities occupied much funds, the continuing capital not being formed a virtuous cycle and inefficient. Under the background of economic environment in decline, if companies fail to improve cash flow efficiently, even unable to raise funds quickly in order to maintain the normal production cycle, the performance will continue to worsen. Financial slack is an important part of slack resources in organization, including cash slack and debt slack, which put enterprises quickly raise funds at a lower cost, not only to ease the impact of the economic environment changes to the enterprise, but also to support enterprises’ strategic behavior and gain a sustainable competitive advantage in face of great investment opportunities. Researches have shown that economic cycles and financing constraints affect working capital management and its relationship with the enterprise performance, but no advice provides prevention mechanisms to prevent enterprise’s capital chain rupture and debt crisis in different contexts. The paper based on the perspective of financial slack, studied how the working capital management influence enterprise performance in different economic cycles, and putted financial slack as a moderator on the relationship between working capital management and enterprise performance, providing empirical support to improve the status of working capital management.This paper reviewed theory both in home and abroad on working capital management and financial slack research, then made a brief comment. Secondly, defined the concept and given theoretical analysis of hypothesis. Then, assured the measure of each variable, and set regression model to verify the hypothesis. Results showed that:(1) Cash conversion cycle and its elements were negatively correlated with enterprise performance. (2) Relative to economic booms, the cash conversion cycle, inventory turnover, account payable turnover with enterprise performance were negative correlated, and the negative correlation significantly weakened during economic downturns. The difference was not significant which the negative correlation between account receivable turnover and enterprise performance in different economic cycles. (3) Financial slack was a significant moderator which adjusted the negative correlation between the cash conversion cycle, account receivable turnover, inventory turnover and enterprise performance. (4) Relative to economic booms, financial slack significantly reinforced the negative correlation between the cash conversion cycle, account receivable turnover, inventory turnover and enterprise performance during economic downturns. The financial slack played an important role between account payable turnover and enterprise performance of significantly negative correlation only in economic downturns.