Firm Performance of Saudi Manufacturers: Does the Management of Cash Conversion Cycle Components Matter?

Amel Kouaib () and Mohammed Ibrahim Bu Haya
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Amel Kouaib: Accounting Department, School of Business, King Faisal University, Al-Ahsa 31982, Saudi Arabia
Mohammed Ibrahim Bu Haya: Accounting Department, School of Business, King Faisal University, Al-Ahsa 31982, Saudi Arabia

JRFM, 2024, vol. 17, issue 1, 1-14

Abstract: The purpose of this study is to examine the liquidity management of a corporation. It aims to examine how managing cash conversion cycle components affects corporate performance. A dataset of 88 firms listed on the Saudi Stock Exchange between 2018 and 2022 was analyzed using both pooled OLS and fixed effects regression models. A sample of 84 firms listed on the Saudi Stock Exchange for the period from 2018 to 2022 was used. Both the pooled OLS and the fixed effects regression models were used. This study’s key findings are: (1) there is a strong negative correlation between the time it takes to convert inventory into sales (inventory conversion period) and firm performance. If inventory does not sell quickly, profit tends to be lower. (2) Firm performance demonstrates a strong inverse relationship with the duration it takes for companies to collect cash from customers, commonly known as the accounts receivable collection period. A short accounts receivable collection period may become collectible and increase a business’s profitability and performance. (3) There is a highly significant negative link between the time taken to pay creditors (days payable outstanding) and firm performance. A short average payment period, indicated by a low payment period, suggests that the firm is promptly settling its bills and obligations without any delays.

Keywords: cash conversion cycle; working capital management; inventory management; accounts receivable management; accounts payable management; firm performance; COVID-19; Saudi Arabia (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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