The Management Of Operational Working Capital?Life Cycle And Corporate Performance

Working capital is not only an important part of enterprise assets,but also the most dynamic part of the assets.The level of working capital management directly affects the overall liquidity of enterprises,profit and the stock prices.As the significant part of enterprises' financial management,the management of working capital almost occupies60% working time of CFO and other financial staff.It plays a vital role in the daily management of enterprises.For most of the listed companies,a higher financing cost can easily lead to the disruption of the business capital chain and will cause irreversible impact on enterprises.Therefore,it is very necessary to put the working capital management in a pivotal position of the enterprise's fund management in the current economic context.Although the economy of China has grown faster than most countries in recent years and our enterprises have made remarkable achievements,according to enterprise life cycle theory,every enterprise will go through the process of development from birth to death and from prosperity to decline.Most of enterprises will be influenced by competitors in the same industry and macro factors both from domestic and foreign markets,different countries in different stages of the life cycle will have different features and face different problems though they may be from the same industry.If enterprises are regarded as living organisms and the impact of the life cycle is considered,how will the relationship change? Will their relationship vary in different stages of the life cycle? In a word,enterprises face both opportunities and challenges.How can enterprises achieve further development through managing operational working capital in different stages? So we focus on changes of the relationship between effect of operational working capital management and corporate performance in current economic conditions.Using the listed companies in our country during 2010—2014 as sample,this paper studies the relationship between the management of operational working capital and the corporate performance.Firstly,this paper analyzes the present research situation of the operational capital management at home and abroad.Secondly according to the life cycle theory,the development process of firms can be divided into three life cycle stages by sales growth rate.Then we put forward hypotheses of this paper and make use of the statistical analysis software Stata12.0 to analyze the relationship between the operational working capital management and the corporate performance,as well aschanges of the relationship between them in the different life cycle stages.After empirical analysis,such as descriptive statistics,Pearson correlation coefficient test,multivariate regression analysis and robust test,then we draw conclusions and put forward relevant policy recommendations.The empirical results indicate that the efficiency of operational working capital management from a general view is positively correlated with the corporate performance.However,after the development process of enterprises were divided into different life cycle stages,additional analysis suggest that in the stage of growing and mature,the longer the cash conversion cycle is,the worse the corporate performance will be.That is consistent with the conclusion of existing research.While in the declining stage,the working capital management efficiency is not significantly related to the corporate performance.Because of the heterogeneity between the working capital management and the corporate performance in different life cycle stages,we should adopt different management methods in different life cycles stages.For the enterprises in growing stage,the operational working capital management should focus on the process of production and sales.On the one hand the enterprises can broaden the sales channels and reduce the inventory of goods,for example,we should cooperate with the middleman actively so we can reduce the costs of inventory with the help of intermediaries or make full use of the internet to develop brick-and-mortar stores and respond to the national ‘Internet +' summons positively.In this way,enterprises can not only get more sales,but also effectively avoid the loss of uncollectible account receivables by old sales methods.On the other hand,enterprises can improve and optimize the old mode and process of production,strengthen mutual cooperation among departments to cut down the production cycle and decrease the capital occupation using the information and digital management methods.For mature enterprises,their products are generally accepted by consumers and have a solid customer base,smooth sales and financing channels.Besides,mature enterprises have established a good relationship with suppliers,so they can adopt a new mode of production named ‘JIT'(Just in Time),or the ‘Zero Inventory' which is an emerging inventory management model.For enterprises in the declining stage,the enterprises themselves are unable to produce enough working capital and cannot reverse the decadent situation simply relying on shortening the working capital turnover period.Therefore,the most significant thing in this stage is raising funds.Only with sufficient working capital,enterprises could have the ability to carry out various production and management activities,and then producemore competitive products to gain profit growth and regain lost market share.Finally the enterprises will avoid bankruptcy and ensure the sustainable development.