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Cash conversion cycle and firm's performance of Japanese firms

Author

Listed:
  • Haitham Nobanee
  • Modar Abdullatif
  • Maryam AlHajjar

Abstract

Purpose - The purpose of this paper is to investigate the relation between a firm's cash conversion cycle and its profitability. Design/methodology/approach - The relation between the firm's cash conversion cycle and its profitability is examined using dynamic panel data analysis for a sample of Japanese firms for the period from 1990 to 2004. The analysis is applied at the levels of the full sample and divisions of the sample by industry and by size. Findings - A strong negative relation between the length of the firm's cash conversion cycle and its profitability is found in all of the authors’ study samples except for consumer goods companies and services companies. Originality/value - Traditional focus in corporate finance was on the long‐term financial decisions, particularly capital structure, dividends, and company valuation decisions. However, the recent trend in corporate finance is the focus on working capital management. Most of working capital management literature is based on the US experience. This study investigates the relation between the firm's cash conversion cycle and its profitability of Japanese firms where the organizational structure is totally different from that of the US firms; most of the Japanese firms are interconnected and related through corporate groups (keiretsu).

Suggested Citation

  • Haitham Nobanee & Modar Abdullatif & Maryam AlHajjar, 2011. "Cash conversion cycle and firm's performance of Japanese firms," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 19(2), pages 147-156, July.
    • Handle: RePEc:eme:arapps:v:19:y:2011:i:2:p:147-156
    DOI: 10.1108/13217341111181078
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    References listed on IDEAS

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    1. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
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    5. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    6. Pedro Juan García‐Teruel & Pedro Martínez‐Solano, 2007. "Effects of working capital management on SME profitability," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 3(2), pages 164-177, April.
    7. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    8. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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