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

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.