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The cash conversion cycle spread

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  • Wang, Baolian

Abstract

The cash conversion cycle (CCC) refers to the time span between the outlay of cash for purchases to the receipt of cash from sales. It is a widely used metric to gauge the effectiveness of a firm's management and intrinsic need for external financing. This paper shows that a zero-investment portfolio that buys the lowest CCC decile stocks and shorts the highest CCC decile stocks earns 5%–7% alphas per year. The CCC effect is prevalent across industries, remains even for large capitalization stocks, distinct from the known return predictors, and cannot be explained by the financial intermediary leverage risk.

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  • Wang, Baolian, 2019. "The cash conversion cycle spread," Journal of Financial Economics, Elsevier, vol. 133(2), pages 472-497.
    • Handle: RePEc:eee:jfinec:v:133:y:2019:i:2:p:472-497
    DOI: 10.1016/j.jfineco.2019.02.008
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    More about this item

    Keywords

    Cash conversion cycle; Stock returns; Intermediary asset pricing;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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