How does the quality of institutions influence the cash conversion cycle of firms?

Chong-Chuo Chang, San-San Kyi and Ya-Wen Chen

Pacific-Basin Finance Journal, 2025, vol. 92, issue C

Abstract: The cash conversion cycle (CCC) is widely used as a proxy for measuring a firm's liquidity position, with a shorter CCC being desirable for efficient working capital management. While many studies explore the impact of firms' internal factors on CCC, few discuss the role of external factors such as the quality of a country's institutions. Institutional quality can be defined as a set of working rules that play a key role in the long-term growth potential of an economy. This study aims to discover the relationship between institutional quality and CCC at a firm level. The empirical findings prove that firms in economies with good institutional quality tend to maintain shorter CCC, thereby achieving more effective working capital management.

Keywords: Quality of institution; Cash conversion cycle; Working capital management (search for similar items in EconPapers)
JEL-codes: G18 G28 G30 G32 G38 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25001209

DOI: 10.1016/j.pacfin.2025.102783

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