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Working capital management, the market environment and corporate performance: evidence from China

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  • Qiang Lin
  • Yue Wang

Abstract

The purpose of this paper is to study the impact of working capital management (WCM) and the market environment (ME) on corporate performance in the context of China’s economy with firms classified by size. All A-share listed nonfinancial enterprises from 2008 to 2019 are included in the sample, and a two-way fixed effects regression model is applied. WCM is measured by the cash conversion cycle (CCC), and profitability is measured by ROA. ME is measured by the government-market relationship (GF) and the development of the non-state-owned economy (Non-SE). First, the research finds that CCC is negatively correlated with corporate performance and that firm size has a regulatory impact on this relationship. Second, the positive relationship between Non-SE and profitability is significant for large firms but not for SMEs. Third, GF is negatively correlated with profitability for enterprises of all sizes, which is contrary to the expected results.This paper is the first to combine the three factors of firm size, WCM and ME to discuss their impact on corporate performance. The results offer important implications for enterprise managers to improve WCM and to seize opportunities in the development of non-state-owned economy.

Suggested Citation

  • Qiang Lin & Yue Wang, 2021. "Working capital management, the market environment and corporate performance: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 53(39), pages 4505-4516, August.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:39:p:4505-4516
    DOI: 10.1080/00036846.2021.1904120
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    Cited by:

    1. Sawarni, Kumar Sanjay & Narayanasamy, Sivasankaran & Padhan, Purna Chandra, 2023. "Impact of earnings management on working capital management efficiency," Finance Research Letters, Elsevier, vol. 54(C).
    2. XueHui Zhang & Kun-Shan Wu & Mingwen He, 2023. "Concave-convex effect of financial resilience on corporate financial performance: quantile regression approach," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.
    3. Johan, Sofia & Kayani, Umar Nawaz & Naeem, Muhammad Abubakr & Karim, Sitara, 2024. "How effective is the cash conversion cycle in improving firm performance? Evidence from BRICS," Emerging Markets Review, Elsevier, vol. 59(C).
    4. Wei‐jian Li & Wei Zhu & Bin Wang, 2023. "The impact of creating shared value strategy on corporate sustainable development: From resources perspective," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2362-2384, September.
    5. Muhammad Azeem Naz & Rizwan Ali & Ramiz Ur Rehman & Collins G. Ntim, 2022. "Corporate governance, working capital management, and firm performance: Some new insights from agency theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1448-1461, July.
    6. Zhang, Fan & Zhang, Jiewei & Gao, Ya & Wang, Zhuquan, 2024. "How does optimizing the business environment affect the capital flows between northern and southern China? From the perspective of enterprises' location choice for out-of-town investment," International Review of Financial Analysis, Elsevier, vol. 94(C).

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