Cash Conversion Cycle Management in Small Firms: Relationships with Liquidity, Invested Capital, and Firm Performance

Jay J. Ebben · Alec C. Johnson

125 citations0/0 files storedJournal of Small Business & Entrepreneurship

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Working Capital and Financial Performance Corporate Finance and Governance Supply Chain and Inventory Management

Abstract

This study investigated the relationship between cash conversion cycle and levels of liquidity, invested capital, and performance in small firms over time. In a sample of 879 small U.S. manufacturing firms and 833 small U.S. retail firms, cash conversion cycle was found to be significantly related to all three of these aspects. Firms with more efficient cash conversion cycles were more liquid, required less debt and equity financing, and had higher returns. The results also indicate that small firm owners/managers may be reactive in managing cash conversion cycle. The study highlights the importance of cash conversion cycle as a proactive management tool for small firm owners.

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References

1981Credit Rationing in Markets with Imperfect Information 1984The Capital Structure Puzzle 1995What Do We Know about Capital Structure? Some Evidence from International Data 1995Relationship Lending and Lines of Credit in Small Firm Finance 1966Handbook of Organizations.1984The Capital Structure Puzzle 1997Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making 1966Handbook of Organizations.

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