Net Working Capital and Firm Performance in Taiwan and China

碩士 === 東海大學 === 財務金融學系 === 104 === In recent years, the net working capital of Taiwanese and Chinese enterprises is consistently rising. When analysing from the view of futures, accounts receivable and accounts payable, we realise the net working capital of Taiwanese enterprises is 43.4% of sales re...

Full description

Bibliographic Details
Main Authors: KANG,TING-YU, 康庭毓
Other Authors: SHIAU,HUEY-LING
Format: Others
Language:zh-TW
Published: 2016
Online Access:http://ndltd.ncl.edu.tw/handle/55689503784923988678
Description
Summary:碩士 === 東海大學 === 財務金融學系 === 104 === In recent years, the net working capital of Taiwanese and Chinese enterprises is consistently rising. When analysing from the view of futures, accounts receivable and accounts payable, we realise the net working capital of Taiwanese enterprises is 43.4% of sales revenue in 2015, and its average growth rate during 15 years is 8.9%. Compared to Chines enterprises, their net working capital is 55.4% of sales revenue in 2015, and its average growth rate is 20.6%. However, from historical data, it shows that enterprises usually hold more net working capital than they need. Holding too much net working capital always leads to the decrease in shareholder value, and it signifies that those enterprises need to improve their working capital management as well. Thus, this study aims to analyse and take further steps to understand this situation. The data of Taiwanese listed companies and Chinese listed companies from the year 2001 to 2015 as the sample data for this study. We analyse the connection between an excessively high ratio of net working capital and company’s performance and also the impact of an excessively high ratio of net working capital on capital expenditures and corporate risks. In addition, in order to analyse even deeply the different influence of an excessively high ratio of net working capital on the performance of company in various degree of industry competition and business life cycles, this study includes the data of degree of industry competition and business life cycles in order to look into this matter. Understanding what an effect of a high ratio of net working capital on company’s performance can help company managers to elevate the efficiency in resource allocation. According to our empirical result, in these two different markets, Taiwan enterprises have an extra high ratio of net working capital is 7% of the average sale, while Chinese enterprises have an extra high ratio of net working capital is 11.5% of the average sale. It shows that enterprises tend to invest excessively in their net working capital. It doesn’t matter if the enterprises are from Taiwan or China, enterprises holding an excessively high ratio of net working capital are apt to possess a worse operating performance, a small company scale, relatively low ration net sales, less intangible assets, a low ratio of financial leverage, shorter time as a listed company, less cash holdings and a small revenue fluctuation compared to those enterprises having underinvestment problems. For Taiwanese enterprises, an exceeding investment in net working capital decreases the performance of company; nevertheless, when those companies having no enough net working capital increase the investment in net working capital, the performance of company is improved. Therefore, it concludes that there is an optimal net working capital level for each enterprise. However, the optimal net working capital level cannot be applied to Chinese enterprises. It reveals when companies having no enough net working capital increase the investment in net working capital, the performance of company still drops no matter how. Based on the result from these two markets, an exceeding investment of net working capital leads to a decrease in capital expenditures. That is, when we put the capital in net working capital, it results in underinvestment in capital expenditures. It demonstrates there is a trade-off relationship between the net working capital and capital expenditures. It does elevate corporate and market risks when enterprises, no matter they are from Taiwan or China, excessively invest in net working capitals. In the end, when we take the degree of industry competition and business life cycles into consideration, the enterprise in an industry having more companies competing with each other alleviates the impact of a high ratio of net working capital on the performance of company. This is especially obvious when it comes to the enterprise having underinvestment problems with net working capital. For growing enterprises, the negative impact of net working capital on the performance of company decreases accordingly in both above-mentioned markets. From the general data of this research, we discover that an excessively high ratio of net working capital investment always results in a bad company’s performance, a decrease in capital expenditures and higher corporate risks. In conclusion, how to make an optimal net working capital decision is extremely essential for companies to develop their business.