The impact of cash conversion cycle on firm profitability

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to seek to investigate the impact of cash conversion cycle (CCC) on performance (i.e. profitability) in Swedish small and medium-sized enterprises (SMEs) over the 2008-2011 period. Design/methodology/approach -The study uses a seemingly unrelated regression (SUR) model to analyse cross-sectional panel data covering 13,797 SMEs operating in four industries. Findings -The study provides empirical evidence that CCC significantly affects profitability. In addition, the firm-level control variables size, age, and industry affiliation significantly affect firm profitability. These findings imply that managers could increase firm profitability by improving their working capital management.Research limitations/implications -The present study is limited to a sample of Swedish SMEs in four industries; further research could examine the generalizability of these findings to other countries and industries. Practical implications -Improved working capital policy could improve firm profitability by reducing the firm's CCC, thereby creating additional firm value. In addition, the results can be used for other purposes, including monitoring of firms by auditors, debt holders, and other stakeholders. Originality/value -The present study contributes to the literature by employing a SUR model to analyse a comprehensive cross-sectoral sample in a high-tax environment. To the authors' knowledge, this is the first empirical study to address this issue in the Swedish context based on a large data set covering SMEs in various industries.

The impact of trade credit use on firm profitability: empirical evidence from Sweden

“…The result regarding the positive relationship between firm size and profitability is in line with those of Asimakopoulos et al (2009), Claver et al (2002 and Gschwandtner (2005), but in contrast to those of Dhawan (2001), Goddard et al (2005) and Pi and Timme (1993). Moreover, the finding that firm age is negatively and significantly related to profitability, supports the findings of Yazdanfar and Öhman (2014), but not the findings of Garcia-Teruel and Martinez-Solano (2007). Lastly, the fact that industry affiliation affects profitability is consistent with Yazdanfar's (2013) findings.…”

“…However, the results of pervious empirical studies concerning the association between age and profitability are contradictory. Garcia-Teruel and Martinez-Solano, (2007) found a positive relationship between age and profitability, while Yazdanfar (2013) and Yazdanfar and Öhman (2014) found an opposite relationship between the variables among Swedish SMEs. Following the latter studies, the present study measured firm age as the natural logarithm of the number of years since the firm's establishment, and the hypothesis is formulated as follows:…”

The quadratic relationship between working capital management and firm performance : Evidence from the Nigerian economy

“…Underscoring this point, Orobia, Padachi, and Munene (2016) noted that poor WCM affects the growth and rate of survival of firms and their overall economic development. However, the mixed findings in the literature (Makori & Jagongo, 2013;Salman, Folajin, & Oriowo, 2014;Yazdanfar & Öhman, 2014) suggest that the effect of working capital management on firm performance is inconsistent. Thus, the effect of WCM on firm performance can be either linear or quadratic and either positive or negative, depending on other relevant variables and situational factors.…”

Working Capital Optimization in Supply Chains

“…Considering the problem of identifying the CCC optimal value, there arises the issue of achieving target rates of return and, at the same time, maintaining the necessary level of liquidity [65][66][67]. In recent years the number of studies devoted to this issue has boomed, though the results are controversial and incomparable due to a number of reasons with research method selection among them (case studies [46; 68]; regression analysis of annual financial statements [4; 8; 18; 63]; optimization modeling [10; 69-71].…”