The working capital management based on vendor relationship – “icing on the cake” or “timely help”

2018 ◽  
Vol 9 (2) ◽  
pp. 199-224
Author(s):  
Zhenjie Wang ◽  
Zhuquan Wang
Keyword(s):  
Supply Chain ◽  
Listed Companies ◽  
Economic Consequences ◽  
Financing Constraints ◽  
Capital Management ◽  
Working Capital ◽  
Continuous Growth ◽  
Working Capital Management ◽  
Content Type ◽  
Industry Competition

PurposeUnder the guidance of Professor Wang Zhuquan’s channel-based working capital management concept, this paper, using a sample of A-listed companies from 2007 to 2013, aims to explore the possibility of measuring vendor relationships from the supply chain (channel) perspective for the first time, making universal testing for working capital management based on vendor relationships. Through systematically answering the question of who is the biggest beneficiary of working capital management based on vendor relationships and to discuss whether suppliers are more willing to provide “timely help” to weak enterprises or to exert an “icing on the cake” effect on strong enterprises, this paper provides a systematic explanation of the causes and economic consequences of working capital management based on vendor relationships.Design/methodology/approachThe authors constructed three models to test the hypotheses of this study. Model (1) explores the cause of working capital management based on vendor relationship from three angles: market position, industry competition degree and property right. Models (2) and (3) examine the economic consequences of working capital management based on vendor relationship from the two aspects of alleviating financing constraints and improving enterprises’ sustained growth capability.FindingsWorking capital management based on vendor relationships has a more significant “timely help” effect on weak companies, which was proved by the inclination of companies with lower market positions, higher industrial competition and private ownerships to adopt working capital management based on vendor relationships. From the perspective of economic consequences, while China’s listed companies benefit generally from working capital management based on vendor relationships, the weak enterprises are the biggest beneficiaries. Based on vendor relationships, the weak enterprises can relieve financing constraints and improve continuous growth capacity. It provides further evidence that suppliers could provide “timely help” to weak enterprises.Originality/valueThe results of this study find that the competition between supply chains replaces the competition among enterprises, and suppliers are more willing to provide “timely help” to weak enterprises rather than to exert an “icing on the cake” effect on strong enterprises. In addition, the working capital management based on vendor relationships facilitates the cooperation of enterprises and suppliers and improves the overall efficiency of the supply chain.

System dynamics analysis of supply chain financial management during capacity expansion

2019 ◽  
Vol 15 (2) ◽  
pp. 623-645
Author(s):  
Omogbai Oleghe
Keyword(s):  
Supply Chain ◽  
System Dynamics ◽  
Value Chain ◽  
Financial Management ◽  
Discrete Event ◽  
Capacity Expansion ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type

Purpose This study aims to describe in detail, a system dynamics-based study that was used to show how a large vertically integrated aquaculture company should approach its stepwise capacity expansion program, without undermining its financial performance or affecting the performance of the value chain. Design/methodology/approach The company and its aquaculture value chain are used as case study. A system dynamics model is developed on the basis of generic end-to-end agribusiness and aquaculture supply chain models. The model includes the unique dynamics relating to an aquaculture supply chain. Also modelled is the working capital management rules of the company, with the effects of the capacity expansion program on its working capital, market share and its supply chain obligations. The model is used to determine the long-term impact of the company’s working capital management under different modes of financing and rate of expanding the capacity. Findings For a large vertically integrated company that wants to increase its capacity, there is a systematic approach to working capital management that can be used to avoid financial distress or value chain distortion. Research limitations/implications Extended the scope of system dynamics modelling within multiple disciplines, namely, agribusiness supply chain finance, supply chain capacity investment, financial management in large companies, supply chain working capital management and aquaculture value chain. Practical implications The developed model can be used to manage supply chain working capital in large vertically integrated agribusinesses, and also to assess supply chain financial risk. Originality/value To enhance the model build, discrete event simulation was used to model aspects of the system. The eventual system dynamics-discrete event simulation model is a form of hybrid simulation modelling that was used to provide a deeper understanding of how supply chain financial decisions affect an entire value chain system.

scholarly journals Working Capital Management and Firms’ Profitability: Evidence from Vietnam’s Stock Exchange

2016 ◽  
Vol 8 (5) ◽  
pp. 55 ◽  
Author(s):  
Huy-Cuong Nguyen ◽  
Manh-Dung Tran ◽  
Duc-Trung Nguyen
Keyword(s):  
Supply Chain ◽  
Stock Exchange ◽  
Listed Companies ◽  
Capital Management ◽  
Working Capital ◽  
Short Term ◽  
Public Companies ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Macroeconomic Effects

<p>The paper investigates what effect Working Capital Management has on firms’ profitability by using the data from listed companies on Vietnamese Stock Exchange. The sample is collected from 127 public companies for the period of 9 years from 2006 to 2014. The research uses four variables to represent Working Capital Management, which are Day of Sales Outstanding (DSO), Day Sales of Inventories (DSI), Day of Payables Outstanding (DPO), and Cash Conversion Cycle (CCC). Moreover, in order to robust the result, the study also takes into the account the following variables: “Leverage, Growth, Tangibility, Size, Industrial Factors, and Macroeconomic Effects”, which were proven to have significant effects on firms’ profitability. The result implies that there is no correlation between Working Capital Management and firms’ profitability. Hence the conclusion is that Working Capital Management can help companies solve the short-term obligations and improve the efficiency by improving the supply chain and credit policies, however it has nothing to do with firms’ profitability of the companies in the sample.</p>

A systematic literature review on working capital management – an identification of new avenues

2019 ◽  
Vol 11 (3) ◽  
pp. 352-366 ◽  
Author(s):  
Umar Nawaz Kayani ◽  
Tracy-Anne De Silva ◽  
Christopher Gan
Keyword(s):  
Literature Review ◽  
Systematic Literature Review ◽  
Empirical Relationship ◽  
Deep Understanding ◽  
Future Research ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Behavioural Aspects

Purpose This paper aims to provide a review of the existing literature available on working capital (WC) and working capital management (WCM). Design/methodology/approach A systematic literature review (SLR) methodology is used to review 187 articles selected from referred journals, books and international conferences for the period 1980-2017. Findings This comprehensive review reveals that much of the focus in the existing literature is paid on investigating the empirical relationship between WCM and firm performance. Furthermore, the attention has been paid towards studying the WC practices. The behavioural aspects, qualitative studies, survey studies and systematic theory development have been ignored in most of the prior studies. These areas have a broader scope for future research. Research limitations/implications This study is based on literature review and theoretical in nature. Therefore, it does not have any empirical results. Practical implications So far, a limited literature review studies have been conducted in WCM perspective. This review provides various emerging trends, which may be considered in future research for providing a deep understanding of WCM. Originality/value This is the first time a detailed review of WCM literature has been conducted by using SLR for the period of 1980-2017. This review will be useful for researchers, business policymaker, finance professionals and all other having direct or indirect concerns with WCM study.

How does working capital management affect the profitability of Vietnamese small- and medium-sized enterprises?

2017 ◽  
Vol 24 (1) ◽  
pp. 2-11 ◽  
Author(s):  
Hien Tran ◽  
Malcolm Abbott ◽  
Chee Jin Yap
Keyword(s):  
Global Economy ◽  
Capital Investment ◽  
Raw Materials ◽  
Optimal Level ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Accounts Receivable ◽  
Accounts Payable

Purpose Well-designed and implemented working capital management (WCM) will encourage positive returns for a business and establish the firm’s value, while ineffective management will undoubtedly lead to failure of the enterprise. The paper aims to discuss these issues. Design/methodology/approach In business, fixed capital and working capital are the two main forms of capital used. The current assets used in the business as working capital for day-to-day operations include raw materials, work in progress, finished goods, bills receivable, cash and bank balance. This paper analyses the relationship between WCM and profitability in Vietnamese small- and medium-sized enterprises (SMEs) after integration into the global economy. Findings The results suggest that SME owner-managers can increase their firm’s profitability by reducing the number of days of accounts receivable, accounts inventories and accounts payable to an optimal minimum. In addition, a robustness check of this study indicates that high profitability will be achieved, with an optimal level of working capital investment in accounts inventories, accounts receivable and accounts payable. Originality/value No work of this sort has been applied to Vietnamese circumstances. It is also rare in SE Asia more generally.

Financial constraints and optimal working capital – evidence from an emerging market

2018 ◽  
Vol 14 (1) ◽  
pp. 37-53 ◽  
Author(s):  
Gaurav S. Chauhan ◽  
Pradip Banerjee
Keyword(s):  
Financial Constraints ◽  
Emerging Market ◽  
Manufacturing Firms ◽  
Capital Management ◽  
Working Capital ◽  
Partial Adjustment ◽  
Working Capital Management ◽  
Content Type ◽  
Cash Conversion Cycle ◽  
Systematic Feature

Purpose The purpose of this paper is to investigate the existence of an optimal or target level of working capital for the Indian manufacturing firms, and whether firms intensely follow the target or not. Design/methodology/approach The paper uses cash conversion cycle as a measure of net working capital and employs partial-adjustment dynamic panel models to test its target-following behavior. Findings The empirical results show that there is no evidence of systematic target-following behavior of working capital for the Indian manufacturing firms. The results hold true even after dividing the sample into four groups depending on the sign and magnitude of deviation. The results further show that lack of target-following tendency is not quite influenced by varying firm-specific characteristics and, therefore, seems to be a systematic feature across firms in India. Research limitations/implications Scarcity of such working capital management studies across emerging economies, facing several financial constraints, limits the comparison of findings. Future studies should be conducted to confirm the results. Practical implications The findings imply that even though an optimal working capital might exist, emerging market firms may not be able to actively pursue it on account of several financial constraints and managerial considerations. Originality/value The study contributes to the scant existing literature on the target-following behavior of working capital management in the Indian manufacturing firms, representing a typical emerging market facing several financial constraints.

Current assets management of small enterprises

2015 ◽  
Vol 42 (4) ◽  
pp. 549-560 ◽  
Author(s):  
Haitham Nobanee ◽  
Jaya Abraham
Keyword(s):  
New York ◽  
Small Firms ◽  
Stock Exchange ◽  
Dynamic Panel Data ◽  
Method Of Moment ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Trade Cycle ◽  
Content Type

Purpose – The purpose of this paper is to investigate the relationship between a firm’s net trade cycle, its size and liquidity. Design/methodology/approach – The relation between the firm’s net trade cycle and its liquidity is examined using Generalized Method of Moment Dynamic Panel-Data System Estimation with Robust Standard Errors for a sample of 5,802 US non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and Over the Counter Market for the period 1990-2004 (87,030 firm-year observations). The analysis is applied at the levels of the full sample and divisions of the sample by size. Findings – The results show negative and significant relationship between net trade cycle, as a comprehensive measure of efficiency in working capital management, and liquidity for small firms. Originality/value – Most of the existing literature focusses on the large firm’s experience of working capital management. Small firms generally face liquidity problems and have limited access to external capital, and studies on their efficiency in working capital management are scant. Thus the present study is useful in understanding the relation between the firm’s net trade cycle and liquidity of small firms.

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