Title: Working capital management in Chinese firms: an empirical investigation of determinants and adjustment towards a target level using dynamic panel data model

Authors: Ajid Ur Rehman; Man Wang; Sajal Kabiraj

Addresses: School of Accounting, Dongbei University of Finance and Economics, Dalian, China ' School of Accounting, Dongbei University of Finance and Economics, Dalian, China ' International Business School, Dongbei University of Finance and Economics, Dalian, China

Abstract: Satisfactory and timely working capital investment policy is a prerequisite for better performance of any firm. Hence, this study analysed not only the determinants of working capital investment policy but also the time taken by firms to adjust their working capital management policies with special reference to Chinese state-owned and non-state-owned enterprises. For this purpose, an extensive dataset of 760 firms, over a period of 12 years (2001 to 2012) is taken for analysis. For robustness's purpose, four models are used to estimate the parameters. The study finds that bigger sized, highly levered and tangible firms invest less in their working capital. Firms with immediate sales growth and asymmetric information invest more in working capital. Board size and board independence are found to have a monitoring role in curtailing working capital investment. Finally, the study highlights an active working capital management policy by Chinese non-state-owned enterprises by reporting a lower adjustment coefficient compared to state-owned enterprises.

Keywords: working capital management; pecking order theory; Chinese firms; firm size; leverage; asymmetric information; two step GMM; China; dynamic panel data; capital investment policy; sales growth; board size; board independence; non-state-owned enterprises; state-owned enterprises; SOEs.

DOI: 10.1504/AAJFA.2017.082930

Afro-Asian Journal of Finance and Accounting, 2017 Vol.7 No.1, pp.84 - 105

Received: 18 Dec 2015
Accepted: 05 Jul 2016
Published online: 15 Mar 2017 *

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