International Journal of Finance, Insurance and Risk Management ISSN: 2047-0916

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

Asif Iqbal, Maqsood Hayat
International Journal of Finance, Insurance and Risk Management, Volume 10, Issue 3, 53-65, 2020
DOI: 10.35808/ijfirm/221

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.


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