Firm Profitability and Economic Crises: The Non-Linear Role of the Cash Conversion Cycle

Agim Kukeli (), Benjamin Widner, Fitim Deari, Gevorg Sargsyan and Nicoleta Barbuta-Misu
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Agim Kukeli: College of Business, Lamar University, Beaumont, TX 77705, USA
Benjamin Widner: College of Business, New Mexico State University, Las Cruces, NM 88003, USA
Fitim Deari: Faculty of Business and Economics, Southeast European University, Tetovo 1200, North Macedonia
Gevorg Sargsyan: College of Business, Lamar University, Beaumont, TX 77705, USA
Nicoleta Barbuta-Misu: Faculty of Economics and Business Administration, “Dunarea de Jos” University of Galati, 47 Domneasca Street, 800008 Galati, Romania

IJFS, 2025, vol. 13, issue 2, 1-17

Abstract: This study investigates the non-linear effect of the cash conversion cycle (CCC) on a firm’s profitability for a sample of 6072 firms from five countries (Germany, Spain, France, Great Britain, and Italy) from 2006 to 2015. Additionally, this study explores the sensitivity of economic crises to the non-linear effect of the CCC on a firm’s performance. This study employs fixed-effects unbalanced panel data and weighted least squares (due to heteroscedasticity) to examine a firm’s performance, using return on assets (ROA) to measure profitability. The cash conversion cycle, financial leverage, size, and tangibility are independent variables. The results of this study show that the effect of the cash conversion cycle on firms’ performance is an inverted U-shape (non-linear). It also shows that the economic conditions vis-à-vis crises influence firm performance. This study found the optimal number of the CCC to be 90 days for the entire sample, 85 days for the non-crisis period, and 92 days for the crisis period. It also finds that the marginal effect of the CCC on ROA is 3.9 times higher during economic crises versus non-economic crisis periods. This study contributes to the existing working capital management literature by examining the non-linear effect of the cash conversion cycle on profitability and the sensitivity of these effects during economic crises. Thus, empirical evidence can serve scholars, business policymakers, and corporate finance professionals in managing their working capital strategically.

Keywords: cash conversion cycle; profitability; panel data; crises (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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