1、 Journal of Business & Economic Studies Author: Russell P. BoisjolyINTRODUCTIONIn recent years major corporations have discovered that there are important cash flow streams available to them if they aggressively manage their working capital accounts （accounts receivable, inventory, accounts payable,
2、 and advance payments）.While some have argued that cash flows generated through working capital management （improving inventory turnover, aggressive accounts receivable collection policies or supplier management programs, lengthening accounts payable payment periods, etc.） are transitory and, theref
3、ore, are not indicative of a fundamental improvement in the internal value creation process （business model）, there is limited empirical evidence on whether these practices （a） have changed the underlying probability distributions of the related financial ratios, （b） persisted over several years rat
4、her than just 2 or 3 years as implied by Mulford and Ely who purport that changes are transitory or temporary, （c） whether these changes in working capital management policies have impacted market values positively （or negatively） or （d） whether we understand the model for cash flows through the fir
5、m adequately to properly conduct empirical tests or forecast cash flows. In addition to managerial policies, one should probably consider changes in technology and changes in the financial environment. Typical DSO or ACP ratios have been radically lowered for most merchandisers by the nearly univers
6、al outsourcing of the credit function to credit card companies. Also, the decline of short-term interest rates most certainly affected WC policies during the period in question, making firms less willing to hold cash, and perhaps more willing to increase short-term liabilities.This issue is importan
7、t to examine not only to determine if changes in management practices have impacted cash flow and value creation, but also to investigate whether ratio norms may have changed and shifted the benchmarks for comparisons between firms. Furthermore, these benchmarks are derived from the measures of cent
8、ral tendency, but the appropriate use of these benchmarks may be influenced （or biased） by the third （skewness） and fourth （kurtosis） moments of the ratio distributions or industry effects or financial condition. If the bias exists and if the skewness is significant, then the appropriate benchmarks
9、may deviate significantly from the mean, median, or mode. In the past, some researchers excluded “outliers,” e.g., introduced by skewness, from their studies because they were responsible for departures from normality, or they made square root or logarithmic transformations to the data to reestablis
10、h or more nearly approach normality. These adjustments theoretically would leave the “benchmarks” unaltered. But, there is substantial evidence the distributions of financial ratios exhibit positive skewness.Previous studies show that distributions of financial ratios exhibit positive skewness and d
11、epartures from normality. However there have been no attempts to explain the source of the skewness. If management has engaged in practices that should attenuate mean deviations, skewness, or kurtosis, then there may be evidence of this that can be discovered by following firms over time. If distrib
12、utions have shifted （mean, variance, skewness, and/or kurtosis）, then a longitudinal investigation may lead to the establishment of new benchmarks or a new benchmark measurement process, as well as examine the impact on stock price performance.Also, if evidence exists for ratio distribution shifts,
13、then there is cause to reexamine the value creation process and the causality of cash flow generation to value creation. Therefore,the starting point is this longitudinal study of an original sample of 50 firms to determine if distributions have shifted due to changes in working capital management a
14、nd corporate reinvestment policies.HYPOTHESIS FORMULATIONThis study will look at the distributional properties of several financial ratios tied to the working capital management and capital investment processes of the firm. We will investigate whether there is evidence to support the acceptance of t
15、he hypotheses that corporations, especially the largest firms, have become more vigorous in managing their working capital processes or capital investment practices to generate significant improvements in cash flow. Specifically, corporations may have improved the management of accounts receivable,
16、inventory, accounts payable, and advance payments to such an extent that distributions of the related financial ratios have shifted significantly. The distributions also may be more skewed as a result of these changes in corporate policy to accelerate customer payments or extend the period taken to
17、pay suppliers. In addition, corporations may have reduced their reinvestment in the firm as a result of productivity improvements that have been achieved over the last 15 years. The reduction in capital investment may have improved the cash flow position of the firms that experienced significant pro
18、ductivity improvements.Hypothesis 1: There has been a significant improvement in the management of accounts receivable that has led to a significant improvement in the accounts receivable turnover during the period 1990 to 2004.Hypothesis 1a: The distribution of the accounts receivable turnover rati
19、o has become more positively skewed over the 1990-2004 time period.Hypothesis 2: There has been a significant improvement in the management of inventory that has led to a significant improvement in the inventory turnover during the period 1990 to 2004.Hypothesis 2a: The distribution of the inventory
20、 turnover ratio has become more positively skewed over the 1990-2004 time period.Hypothesis 3: There has been a significant improvement in the management of accounts payable that has led to a significant decrease in the accounts payable turnover during the period 1990 to 2004.Hypothesis 3a: The dist
21、ribution of the accounts payable turnover ratio has become more negatively skewed over the 1990-2004 time period.Hypothesis 4: There has been a significant improvement in the management of working capital that has led to a significant improvement in the working capital per share during the period 19
22、90 to 2004.Hypothesis 4a: The distribution of the working capital per share ratio has become more positively skewed over the 1990-2004 time periodHypothesis 5: There has been a significant improvement in the management of working capital that has led to a significant improvement in the cash flow per
23、 share during the period 1990 to 2004.Hypothesis 5a: The distribution of the cash flow per share ratio has become more positively skewed over the 1990-2004 time period.Hypothesis 6: There has been a significant improvement in the management of capital expenditures that has led to a significant reduc
24、tion in the investment ratio during the period 1990 to 2004.Hypothesis 6a: The distribution of the investment ratio has become less positively skewed over the 1990-2004 time period.METHODOLOGYThe empirical tests of these hypotheses were conducted on an original sample of 50 selected at random from t
25、he 2005 Fortune 500. We excluded banking institutions and firms from the oil and gas industries since they have unique characteristics and two firms selected at random were eliminated from consideration because they were in bankruptcy. The final viable sample was 48 spread across industries and then
26、 Delphi declared bankruptcy during the analysis period. Data were collected from Compustat for the years 1990-2004. After calculating the ratios some firms were eliminated from consideration for individual ratios because they did not have enough data points; because they were acquired or were formed
27、 through acquisition during the study period; because they went bankrupt during the study period; or they did not report the data categories needed to calculate a specific ratio during an extended period of time during the study time frame. This sample consisted of non-bank institutions across a var
28、iety of industries.The purpose of this study is to determine whether any evidence exists to support the hypotheses stated above. And, if any of the hypotheses are confirmed, this would be one of the first studies to attribute empirical results for financial ratios to changes in management practices
29、over time.EMPIRICAL RESULTSThe data were analyzed and summary statistics were calculated for the sample firms.It reports the means of five financial ratios of interest: accounts receivable turnover, inventory turnover, accounts payable turnover, working capital per share, and cash flow per share. As
30、 expected, account receivable turnover and inventory turnover increase monotonically over the 15 year time period. Corporations have focused on improving these measures using a variety of managerial techniques. In managing accounts receivable corporations have utilized techniques such as employing m
31、ore vigorous collection procedures, offering more generous cash discounts to early payers, paying early and taking discounts even when discounts are not offered, factoring receivables, improving product quality to reduce disputed receivables which tend not to be paid while the dispute remains unreso
32、lved, etc. In managing inventory firms have utilized just-in-time procedures with suppliers to reduce storage while awaiting production; make-to-order procedures to reduce work-in-process inventory, lean manufacturing initiatives to reduce the order-to-ship cycle time, quality programs that emphasize design for manufacture to reduce the number of parts, supplier rationalization to reduce the number of suppliers which reduces the number of different parts, etc. The numbers reported by writer verify that these corporate initiatives and progr
