Dynamic Interaction Among Cash Conversion Cycle Components and Their Antecedents in Simultaneous Equations Modeling

Amna Asim Shaikh and Danish Ahmed Siddiqui

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: The Cash Conversion Cycle (CCC) is a concept that businesses often use to demonstrate how successful they convert investments in inventory and resources into cash, and therefore, how effective the actual cash flow management is. While previous research has been conducted on individual components of the CCC, there are gaps in knowledge to prevent businesses from enhancing their working capital management. The aim of this study is to determine the interrelationship of the CCC components. The sample includes 126 non-financial Pakistani firms listed at the Pakistan Stock Exchange from 2010 to 2023. Then we analyze endogenous variables, included in the research, such as Days Inventory Outstanding (DIO), Days Receivables Outstanding (DRO), Days Payables Outstanding (DPO), and exogenous variables such as capital intensity, gross profit margin, sales surprise, firm size, and old assets. All three CCC components were simultaneously determined, using the Error Correction Three Stage Least Squares (EC3SLS) technique for panel data analysis. Variables such as Gross profit margin and capital intensity as well as the components of the cash conversion cycle are crucial in describing variations in inventory. In general, this study demonstrates the impact of various working capital components on business efficiency and confirms the impact of financial variables on the operations of the organization.

Keywords: Cash Conversion Cycle (CCC); Days Inventory Outstanding (DIO); Days Receivables Outstanding (DRO); Days Payables Outstanding (DPO); Capital Intensity; Sales Surprise; Working Capital Management; Gross Profit Margin; Firm Size; Old Assets (search for similar items in EconPapers)
Date: 2026
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