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Efficiency of Working Capital Management and Firm Value: Evidence From Chinese Listed Firms

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  • Ratnam Vijayakumaran

Abstract

This paper examines the relationship between the efficiency of working capital management (WCM) and the firm value, focusing on a large panel of Chinese listed companies. WCM which involves a trade-off between profitability and risk is a very important element of the financial management of the firm. The net trade cycle (NTC) and its components are used to measure efficiency of WCM, while the firm value is measured by the Tobin¡¯s Q ratio. The study makes use of the panel data methodology to estimate the regression models. This study reports that the net trade cycle is negatively associated with firm value. More specially, the study finds that firm value is adversely affected by the number of days accounts receivable and inventories, indicating that working capital provides a real opportunity for financial executives to release cash and improve firms¡¯ value. The findings of this study are consistent with the idea that managers can enhance firm value by efficiently managing the investment in working capital.

Suggested Citation

  • Ratnam Vijayakumaran, 2019. "Efficiency of Working Capital Management and Firm Value: Evidence From Chinese Listed Firms," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 133-144, October.
    • Handle: RePEc:jfr:ijfr11:v:10:y:2019:i:6:p:133-144
    DOI: 10.5430/ijfr.v10n6p133
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    References listed on IDEAS

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    1. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, June.
    2. Schiff, Michael & Lieber, Zvi, 1974. "A Model for the Integration of Credit and Inventory Management," Journal of Finance, American Finance Association, vol. 29(1), pages 133-140, March.
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    Cited by:

    1. Mohammed Ibrahim & Bula Yila Dengel, 2021. "Cash Conversion Cycle and Value of Listed Oil and Gas Companies in Nigeria," Review of Market Integration, India Development Foundation, vol. 13(1), pages 20-41, April.
    2. Anh Huu Nguyen & Duong Thuy Doan, 2020. "The Impact of Intellectual Capital on Firm Value: Empirical Evidence From Vietnam," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 74-85, July.

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