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Supplier Firm and Customer Firm Relationship on the Performance of Working Capital Management

Author

Listed:
  • Asif Iqbal
  • Maqsood Hayat

Abstract

Purpose: This paper examines how supplier-firm relationship and firm-customer relationship affect the performances of the firm's working capital management of purchasing channels and marketing channels respectively. Design/Methodology/ Approach: The article selects data of listed companies in manufacturing industry from 2016 to 2017 as a sample, and empirically analyzes the mechanism of supply chain management of manufacturing enterprises that affects the performance of operational working capital management. Findings: Our results reveals that working capital turnover in purchasing channels is adversely related to the timeliness of payments (receivables), which shows that overdue loan (undue credit) decreases the efficiency of working capital management in purchasing channels. Our results also describe that the association between working capital conversion cycle in purchasing channels and the supplier concentration is “U-shaped”, which demonstrate that both centralize and diversification of suppliers have their drawbacks and an appropriate number of suppliers need to be taken into considerations. Beside this, we find in this study that the relationship between working capital conversion cycle in marketing channels and customer focus is negative and U-shaped, which shows that different degrees of customer focus need to be treated differently. In addition, we find out that both the purchasing channels and working capital turnover periods of marketing channels are negatively correlated with the degree of leverage and the relationship between banks and enterprises. Practical Implications: We introduce the performance of working capital management based on “channel management” and study the influence of customer relationship and supplier relationship on the “purchasing channels” of the enterprise and the working capital management performance of the “marketing channel” respectively to improve the working capital management performance through the supply chain management. Originality/Value: Therefore, firms should make full use of leverage and maintain fair and good relationship with banks.

Suggested Citation

  • Asif Iqbal & Maqsood Hayat, 2020. "Supplier Firm and Customer Firm Relationship on the Performance of Working Capital Management," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(3), pages 53-65.
    • Handle: RePEc:ers:ijfirm:v:10:y:2020:i:3:p:53-65
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    References listed on IDEAS

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    1. Hoang-Lan Le & Kieu-Trang Vu & Thi-Bich-Ngoc Le & Ngoc-Khanh Du & Manh Dung Tran, 2018. "Impact of Working Capital Management on Financial Performance: The case of Vietnam," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 3(1), pages 15-20.
    2. Kawasaki, Seiichi & McMillan, John, 1987. "The design of contracts: Evidence from Japanese subcontracting," Journal of the Japanese and International Economies, Elsevier, vol. 1(3), pages 327-349, September.
    3. Fynes, Brian & Voss, Chris & de Burca, Sean, 2005. "The impact of supply chain relationship quality on quality performance," International Journal of Production Economics, Elsevier, vol. 96(3), pages 339-354, June.
    4. Morris Lamberson, 1995. "Changes in Working Capital of Small Firms in Relation to Changes in Economic Activity," American Journal of Business, Emerald Group Publishing, vol. 10(2), pages 45-50.
    5. Gupta, Manak C, 1969. "The Effect of Size, Growth, and Industry on the Financial Structure of Manufacturing Companies," Journal of Finance, American Finance Association, vol. 24(3), pages 517-529, June.
    6. Hoang-Lan Le & Kieu-Trang Vu & Thi-Bich-Ngoc Le & Ngoc-Khanh Du & Manh Dung Tran, 2018. "Impact of Working Capital Management on Financial Performance: The case of Vietnam," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 3(1), pages 15-20.
    7. Hawawini, Gabriel & Viallet, Claude & Vora, Ashok, 1986. "Industry influence on corporate working capital decisions," MPRA Paper 44894, University Library of Munich, Germany.
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    More about this item

    Keywords

    Supplier relationship; customer relationship; working capital management.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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