An empirical study on supplier concentration and working capital: the moderating effect of internal control

Working capital is an essential resource for the continuity of corporate operations, and its management is crucial for maintaining a firm's everyday activities. Senior management must prioritise the appropriate management of working capital to ensure the company's long-term stability and sustainable development. This study analyses a data set of 7451 firm-year observations from A-share listed companies on the Shanghai and Shenzhen Stock Exchanges from 2012 to 2019 to evaluate the impact of supplier concentration and internal control on the efficacy of corporate working capital management. The empirical data indicate that increased supplier concentration is associated with a diminished cash conversion cycle, hence improving the efficiency of working capital utilisation. This suggests that fostering robust, cooperative relationships with a select group of essential suppliers might improve cash flow management and accelerate capital turnover. The study additionally reveals that the internal control system positively moderates this association. Implementing strong internal control systems can enhance the beneficial impact of supplier concentration on the effectiveness of working capital management.