The Application of Working Capital Management and Business Fluctuation on Corporate Financial Distress

• Main Authors: Yen-Fen Lee, 李艷芬
• Other Authors: Cheng-Yih Hong
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/34380751874424568915

碩士 === 朝陽科技大學 === 財務金融系碩士班 === 94 === The success or failure of an enterprise’s management is related to various internal factors and external factors. The internal factor can be the enterprise’s working capital management strategy and the external factor can be the change in the state of the macroeconomic environment. When an enterprise has a difficulty in the short-term fund deployment, or its fund allocation is not inappropriate, there may be the fund gap, leading the eruption of the financial distress. We employed 83 companies of listing (pre-listing) with a financial distress and the matching 83 normal companies (166 companies in total) during the periods of July 1995 to June 2005. The total sample is divided into four major industries according to the business property relativity. We investigated whether the working capital management had the industrial effect or not. We also employed total sample to construct a financial distress forecasting model with and without business cycle factor. The empirical results showed that: because of the unique property of construction industry, the debt ratio and the current liabilities/ total assets ratio of the construction industry became the highest among industries; the stock turnover, the new liquid ratio, and the cash flow rate were the lowest; the cash cycle was the longest. For the electronic, mechanical, and electrical industries, because the products’ life cycle is short, and the export dependence is high, the turnover of the account receivable was the lowest, and the stock turnover and the liquidity ratio was higher than those in other industries. As for the food industry, owning to the products are restricted to the shelf life, it had higher stock turnover. From the role of the working capital management, the debt ratio is significant each quarter, showing that the higher is an enterprise’s debt, the greater is the risk. An enterprise is more likely in distress. After adding the interaction terms of the dummy variables of the monitoring indicators and the financial variables, the forecasting ability of two financial distress forecasting models (Logit and Probit models) can both be improved up to 88%。