Study on the Performance Evaluation of the Parent-Subsidiary Corporations Financial Management and Control

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10 Νοε 2013 (πριν από 3 χρόνια και 6 μήνες)

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Study on the Performance Evaluation of the Parent
-
Subsidiary Corporation

s
Financial Management and Control


Xi

Zhao
, Guo
-
hong

Li
, Jia
-
yin

Liu
, Hang

Xu

Department of Management and
Economics

Tianjin University

Tianjin 300072

P.R.
China
,

(
summarljy@sina.com
)


A
bstract

-

F
ocusing on 84 listed parent corporations,
this paper examines their performance after implementing
financial management and control, adopting
two methods,
financial index analysis and factor analysis. Next, a
comparison was made
among

different industries

concerning financial performance, and also a trend analysis
on years after conducting financial management and control.
A conclusion can be drawn that not all corporation
undergoing financial management and control meet their
goals successfully.
Therefore

t
o optimize
corporate resources
and maximize their performance, an effective pattern of
financial management and control should be established in
accordance with certain industry characteristics and the
specific
internal and external environment
in which
the
company
stand
.


Key Words

-

Parent
-
Subsidiary Corporation, Financial
Management and Control, Performance Evaluation, Factor
Analysis


I.INTRODUCTION


In recent years, with the acceleration of economic
globalization, many companies are
faced
with
internal
mana
ge
ment issues deriving from complex corporate
structure and expanding size.

Being the inevitable choice
for most companies, Parent
-
Subsidiary Corporation have
made significant progress on financial management and
control. However problem emerg
es accompanying with
the progress: firstly, irrational structure designs.
When
designing their organization structure, some

companies
fail to integrate financial management with internal and
external environment. As a result, they are unable to
relocate re
sources reasonably. Second,
devoid of
the
awareness on account of financial management and
incomplete cont
rol techniques, risk concerning the loss of
asset is aggravated. Thirdly, conflicts within the company
arouse when

parties within the corporation fail

to
recognize their function. Last,
as the group members are
independent legal person, and capital is the main link
connecting members within the group, in order to make
the company become one economic composition,
financially enhancing the integration of
control has
become very necessary.



II.
C
ASE STUDY


A
.

S
AMPLE AND INDEX

Samples are chosen from companies listed on the main
board of the Shanghai Stock Exchange (hereinafter
referred to as SHE
) and

Shenzhen Stock Exchange
(hereinafter referred to as the
SZSE)

from2009 to 2011.
As the group 's consolidated financial statements is
prepared by parent company, according to the December
31, 2009 stock holding ratio,

screen

in 50% and above,
which have control over the company. Then, on the basis
of the informa
tion concerning financial control disclosed
in financial reporting and internal control evaluation
report

eliminates those who does not disclose or not
clearly disclosed by the company. Finally,

some listing
c
orporation financial condition are in the
presence of
abnormalities, or continuous loss of two years of above,
or insolvent, if these companies are taken into the sample,
the validity and applicability will be greatly affect
ed.

Thus eliminate

the PT, ST, *ST

listing c
orporation
. More

over

leave ou
t companies with

data omission or deletion
of
the index
. After screening, a total of

84 listing
c
orporation
meet the requirement.

I
n order to thoroughly evaluat
e

the company's
performance, this paper choose 15 indicators reflecting
the company profit abili
ty, cash flow ability, operation
ability, growth ability and the debt paying ability,
respectively.


B
.
H
YPOTHESIS

The fundamental purpose of parent company financial
management and control is to regulate subsidiary
financial operation, to achieve final
group benefit
maximization. In order to highlight the focus of this paper,
put forward the following research hypothesis:

(
1
)
the financial data is true and reliable

We suggest that listing Corporation financial report is
true and reliable, and its disclos
ure has been audited; the
compilation of financial data strictly abide by the laws
and regulations and related financial system requirements.

(2) the parent company financial control goal is to
realize the group benefit maximization

Financial management a
nd control plays a core role in
the group of the whole control system. Its establishment is
beneficial to strengthen the group's cash flow and the use
of risk prevention, and is conducive to the assets
operation, r the cost reduction.

(3) the selection o
f the financial index is appropriate

This paper selects15 financial indexes

which
comprehensively reflecting
profitability, operating cash
flow ability, operation ability, growth ability and the debt
paying ability
. It is highly relevant with

the company
's
performance evaluation
.


C
.FACTOR ANALYSIS

This paper uses factor analysis method to study the
performance of company which going through financial
management and control. The starting point is to use
fewer independent factor variables instead of the
original
variables, to extract the information. The public factor is
expressed as a linear combination of the original variables
to get the factor score. And then take the public factor
variance contribution rate as weight to calculate
integrative factor s
cores. The model is as the following.

Fj

=
m
i ij
i 1
wY


= (1)

Wi =
1
m
i
i



(2)

Among them, Fj is the j object composite score; wi is
the public factor weight
.


III. RESULT


According to the SPSS output of the common

factor
variance contribution rate and factor score coefficient
matrix, the performance from

ula for each year can be
established by using the factor scores model. Finally we
can calculate the general performance for every sample
and on every year. In orde
r to make a comparison
between different industries, we divide the sample into six
categories, mining industry, manufacturing industry,
energy and building transportation, wholesale and retail
industry, the real estate industry and other industries. A
comp
arison was made among different industries
concerning financial performance, and also a trend
analysis on years after conducting financial management
and control.


A
.
HORIZONTAL COMPARISON


Figure1 performance in 2009


Figure2 performance in

2010


Figure

3 performances in 2011

According to figure 1
, 2, 3
: in 2009, the mining
industry performance scores the highest, followed by the
wholesale and retail industry and real estate industry.
In

2010 mining industry performance still keeps the lead,

the
only dif
ference
is
that the general performance of
manufacturing industry has greatly improved.
In 2011,
firms from
other industr
ies except for energy and building
show a positive performance.

The

wholesale and retail
industry

scores the highest.

Comprehensive
performance

shows
, to a certain extent
,
the effectiveness of
financial management behavior.

It

can
also
be seen

in the figures that
, in 2009,
the performance
of
manufacturing, energy and building traffic industry is
negative
. Firms from these sectors

shoul
d try

to find the
reasons for the low performance evaluation,
taking the
industry characteristics into consideration. And also from
a financial perspective,
strengthen the subsidiary of the
financial management and control.

Financial

control,
investment co
ntrol and financial risk control

are all the
groundwork for the

financial control system
. They secure
the

maximization of group performance,
and support the
whole group to remain invincible among intense
competition.


B
.
T
REND ANALYSIS

In order to understand the
annual
performance
movement

of

each industry
, we divide the group into 6
groups:
the mining industry, manufacturing industry,
energy and building transportation, wholesale and retail
trade and real estate
.


Figure 4 mining indus
try performance trend

(1)
The mining industry of integrated performance trend
is decreasing year by year. In view of the mining industry
with its own characteristics, its biggest problem is how to
financially integrate and control important information
and
resources. The parent company needs to reasonably
allocate and
monitor

resources and funds
available
to
subsidiary
,

ensur
ing

the rational use of resources and
assets. The first thing is to improve the utilization of
funds

and
management, clearly

track

the flow of funds.
Second,

regular maintenance of the fixed
assets

and
timely recovery of
the idle fixed assets
can help
to
enhance the recovery of funds. Finally, the parent
company

should
perfect the financial supervision
mechanism

t
o avoid the waste of

funds and assets,
and to
record

funds and assets flow, reduce asset

loss
.

Figure
5

manufacturing industry
performances

(2)
Manufacturing performance scores overall is first
increased and then decreased. In 2009 and
2011comprehensive performance scores are negative,
whereas, in 2010 it gains a positive but not very high
score.
China

is

a
manufacturing country, but with the
increasingly fierce market competition, manufacturing
management environment and the market environment
has undergone a series of great changes. All the time since,

financial control
in terms of
cost
is the

headache for

manufactur
ers.
Traditional manufactu
ring cost control
system is limited

and inaccurate

especially

in terms of
cost allocation and accounting

in the production process
.
Huge waste drags down the
company's core
competitiveness

significantly
. Regarding the
manufacturing industry,
intensive cost

control mode must
be established

to cast off this kind of situation. The parent
company

need to

improve the cost control system of
execution and supervision,

and constantly adjust

the cost
accounting and allocation mode,
having a clear idea of

production,

supply, sales process costs
took place in
subsidiary companies.


F
igure 6 energy and building industry performance

(3)
In Energy and building transportation area the
annual performance is negative, but the trend was
increasing year by year. Financial ma
nagement structure
in most companies is not perfect, and devoid of a
comprehensive and effective financial information
network. An excellent organizational structure helps to
delegate power and keep the control process on a clear,
efficient and orderly cou
rse. First of all, this group should
adopt the mixed financial control mode, directly control
subsidiary which makes the greatest contribution. Apply a
centralized management over funds and resources; avoid
weakening the executive power of the subsidiary.
Namely,
the parent
-
subsidiary company relationship of
administrative subordination change for the property
management mode. Secondly, financial software should
be unified to strengthen the centralized management of
financial information, optimize the netwo
rk environment.


Figure 7 wholesale and re
tail industry performance

(4) Wholesale and retail trade integrated performance
scores were decreased and then increased above the 0
level. The form of Wholesale and retail trade in China is
fragmented, and came to form at a relatively late time
scale. The traditional financial con
trol mode is simple
bookkeeping and accounting, lack of management and
prediction. Therefore, to the wholesale and retail industry,
the key is to improve the financial management control
mode, so as to better survival and development. Parent
company should

strive to introduce high
-
quality
personnel and training, strengthen financial accounting
and financial analysis. the financial analysis, especially,
should not only attach importance to afterwards analysis,
but also the accuracy of analysis, to provide a
reliable
data base for the group's scientific management. Large
wholesale and retail group also should improve control
over the logistics costs management,
as a
reasonable cost

control
contribute
s

to the group

profit
.


Figure 8 estate industry per
formance

(5)
Real estate industry comprehensive performance
score is also a first down after the increasing tendency.
Real estate industry is one of pillar industries of China.
The financial control issues are mainly concentrated in
three aspect capital, investmen
t and cost. Real estate
company is characterized by large investment, long
construction period, slow turnover of capital. Therefore,
one issue to deal with is the return of capital. Parent
company financial management should be strengthened to
guarantee th
e safety and high efficiency of fund
circulation. At the same time, the investment arrangement
of the subsidiary company shoul
d closely monitored and
managed.
Parent company should pay special attention
to
company cost, because

cost

in estate is bigger and
relatively

more

complex, the parent company should
perfect
the budget control and regulate the cost analysis,
by implementing a

internal and external audit mechanism
.



IV.
C
ONCLUSION


Enterprise groups play a decisive role in econ
omic
development, and to establish a scientific and sound
financial management and control system is essential for
the group's survival and development. Good financial
control system helps to ensure that the group runs
normally, and to gain an invincible p
osition in the
increasingly intense international competition.

First of all, the parent company has special property right
relation, so its financial control system appears a multi
level composite structure. The parent company, referring
to the group's ov
erall strategic, prepares for annual plans
and decompose them to affiliates; subsidiaries then
establish their annual budget, and reports to the parent
company. The parent company is also responsible for the
entire group fund distribution, control, supervi
sion and
assessment. The subsidiary operates financial activities
under the monitor of the parent company.

Secondly, according to the empirical data and results
can be seen, even though each group company has
undergone the implementation of financial con
trol, given
the industry's own characteristics and problems, focus are
different. Moreover, the financial aspects of the content
are different in control modes and means, for different
industries, the financial control is not universal. Parent
company must

combine the life cycle with development
strategy, the strategic objectives of the group and the
financial control mode
to
strive to achieve the
maximization of group performance.



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