• Management Style of Accounts Receivable and Performance of the Firms: Evidence from Taiwan Electronics Industry

Abstract

To enhance the competiveness of its value creation, a business firm has to effectively allocate and efficiently utilize all of its assets. Undoubtedly, accounts receivable (A/R) is considered one of those major assets that a firm has to pay attention to. Though A/R plays an increasingly important role in nowadays business operations, researchers haven’t made notable advancements in the study of A/R management in recent years. In this paper, we proposed a two-dimensional framework for the classification of A/R management style. Specifically, we assign firms into one of four styles of A/R management according to two attributes of the underlying firms. The two attributes are the sensitivity of the A/R policy change to the firms’ sales ( λ ) and the firms’ controllability over the A/R adjustment ( β ), respectively. To further investigate the plausibility of these two attributes, we constructed two empirical models to test four related hypotheses. Financial data and stock prices of the listed Taiwan’s electronics firms over the time period from 1997 to 2006 were collected and used in the study. The major findings of our study are as follow: First, firms of different management style of A/R pose significantly diverse financial characteristics. Second, the sensitivity of the A/R policy has a significantly negative effect on the performance of the firm. Third, the controllability of the A/R adjustment has a significantly positive effect on the market valuation of the firm.

Keywords: Accounts Receivable, Management Style, Partial Adjustment Model,

Performance, Market Valuation