Research On The Effect Of Equity Incentive On Working Capital Management Efficiency

Working capital, as the lifeline of enterprises, is related to every link of business operation, and affected by any operating decisions made by top management. Recently, more companies implement equity incentive to better bind the interests and risk of owners and senior executives. After managers accept equity incentive, their status change which affects their behaviors and firm’s financial management policies. Therefore, it is necessary to study the relationship between equity incentive and working capital management from the perspective of corporate governance.This study selects Chinese listed companies in manufacturing industries between 2010 and 2014 as empirical samples. Based on Principal-agent Theory and Upper Echelons Theory, this thesis explores the effect of equity incentive on working capital management including In ventory Conversion Cycle, Receivable Conversion Cycle, Payable Conversion Cycle, and Cash Conversion Cycle, as well as the moderating effect of top management characteristics(or, the number of executive team, age diversity, the percentage of female and ed ucation levels).The results show that equity incentive is significantly related to working capital management efficiency, that is to say, higher equity incentive certainly leads to lower Inventory Conversion Cycle, Receivable Conversion Cycle, Payable Conversion Cycle, and Cash Conversion Cycle. Besides, the characteristics of senior executives play significant moderating effects in the above relationship: the number of executive team negatively moderates; but diversity, the percentage of female and educa tion levels of the executive team plays positive moderating roles.Therefore, this paper helps companies in manufacturing to improve working capital management effciency and provides reference for establishing reasonable equity incentive plan and personnel selection and training.