Firm Performance of Saudi Manufacturers: Does the Management of Cash Conversion Cycle Components Matter?
Abstract
:1. Introduction
- The primary goal of this study is to examine how the cash conversion cycle impacts the performance of manufacturing companies in Saudi Arabia. This overarching objective is further divided into four sub-objectives, which are delineated as follows:
- To inspect the link between the aggregate cash conversion cycle and the firm’s performance.
- To explore the link of the inventory policy with the firm’s performance.
- To explore the link of the accounts receivable policy with the firm’s performance.
- To consider the link of the accounts payable policy with the firm’s performance.
2. Literature Review and Hypotheses Development
2.1. Cash Conversion Cycle Management and Firm Performance
2.2. Inventory Management and Firm Performance
2.3. Accounts Receivable Management and Firm Performance
2.4. Accounts Payable Management and Firm Performance
3. Research Design and Methodology
3.1. Sample Selection and Model Specifications
3.2. Variables Measurement
3.2.1. Dependent Variable: Firm Performance Measurement
3.2.2. CCC Variables Measurement
3.2.3. Control Variables
4. Main Findings
4.1. Descriptive Statistics
4.2. Multicollinearity Test
4.3. Panel Tests
4.4. Hypotheses Validation and Discussion
4.5. Robustness Checks and Further Analysis
5. Conclusions
Author Contributions
Funding
Data Availability Statement
Conflicts of Interest
Appendix A
Variable | Symbol | Measure | Reference | Data Source |
---|---|---|---|---|
Return on assets | ROA | Book value of net profit after tax/total assets | Kim (2005) | Datastream |
Inventory conversion period | ICP | (Average inventory/cost of goods sold) × 365 | Gitman et al. (2015) | Datastream |
Accounts receivable collection period | ARCP | (Average receivables/sales) × 365 | Brigham (1995) | Datastream |
Days payable outstanding | DPO | (Average payables/cost of goods sold) × 365 | Brigham (1995) | Datastream |
Cash conversion cycle | CCC | CCC = ICP + ARCP − DPO | Keown et al. (2003) | Datastream |
Firm size | FSIZE | Natural logarithm of total assets. | Fama and French (1995) | Datastream |
Debt ratio | DEBT | Long-term liabilities divided by lagged total assets. | Datastream | |
Board size | BSIZE | Number of members in the board. | Beiner et al. (2004) and Alves (2011) | Datastream |
Big4 auditor | BIG | Indicator that takes the value of 1 if the company is audited by at least one of the Big4 audit firm, and 0 otherwise. | Annual reports | |
COVID-19 | COVID | Indicator that takes a value of 1 for the firm-year observations that fall in the coronavirus pandemic (2020–2021), and 0 otherwise. | Authors |
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Sector | Industry Group | Firms | Obs. | % | |
---|---|---|---|---|---|
1 | Energy | Energy | 4 | 20 | 5 |
2 | Materials | Materials Industry Group | 46 | 230 | 52 |
3 | Industrials | Capital Goods | 16 | 80 | 18 |
4 | Consumer Discretionary | Consumer Durables and Apparel | 7 | 35 | 8 |
5 | Consumer Staples | Food and Beverages | 15 | 75 | 17 |
Total | 88 | 440 | 100 |
Mean | Median | St. Dev. | Kurtosis | Skewness | Minimum | Maximum | |
---|---|---|---|---|---|---|---|
Panel A. Summary statistics | |||||||
ROA | 8.8716 | 8.9734 | 5.2891 | 2.5528 | 1.5990 | 0.0510 | 30.1357 |
CCC (days) | 52.6971 | 41.6284 | 145.1492 | 3.1855 | 0.0942 | 8.4300 | 110.3149 |
ICP (days) | 103.4313 | 74.9566 | 142.7498 | 28.5379 | 4.8279 | 5.1728 | 1106.0606 |
ARCP (days) | 81.0069 | 35.1963 | 21.0878 | 82.9970 | 8.4962 | 29.0526 | 150.9347 |
DPO (days) | 59.1641 | 60.0000 | 26.8383 | 1.9355 | −0.0524 | 10.0000 | 104.0000 |
FSIZE | 17.1270 | 15.9473 | 2.1495 | −0.8242 | 0.5016 | 14.0411 | 20.5364 |
DEBT | 1.5898 | 0.5301 | 3.6516 | 19.1304 | 5.0047 | 0.1142 | 19.3150 |
BSIZE | 8.3570 | 9.0000 | 3.2514 | 12.0651 | 3.8229 | 4.0000 | 24.0000 |
Panel B. Frequencies statistics | Obs. | Freq (1) | % | Freq (0) | % | ||
BIG | 440 | 215 | 49 | 225 | 51 | ||
COVID | 440 | 176 | 40 | 264 | 60 |
ROA | CCC | ICP | ARCP | DPO | FSIZE | DEBT | BSIZE | VIF | |
---|---|---|---|---|---|---|---|---|---|
ROA | 1.0000 | −0.1478 *** | −0.0861 * | −0.0687 * | 0.0709 * | 0.0795 ** | −0.0330 * | 0.0542 | - |
CCC | −0.2568 ** | 1.0000 | 0.4673 ** | 0.5981 ** | 0.4042 *** | 0.1225 | 0.0120 * | 0.1475 | 1.50 |
ICP | −0.1030 ** | 0.4394 ** | 1.0000 | −0.0265 | 0.0137 *** | 0.0012 | −0.0016 | 0.0309 *** | 1.15 |
ARCP | −0.0084 ** | 0.4977 ** | −0.0455 | 1.0000 | 0.0173 | 0.3050 *** | −0.0427 | 0.0913 * | 1.66 |
DPO | 0.0813 * | 0.4113 *** | 0.1822 *** | 0.0384 | 1.0000 | −0.0768 | 0.2778 *** | −0.0435 | 1.24 |
FSIZE | 0.0885 ** | 0.2892 | 0.0058 * | 0.3050 *** | −0.0809 | 1.0000 | −0.2196 *** | 0.3901 *** | 1.57 |
DEBT | −0.0237 * | 0.0208 | −0.0042 | −0.0427 * | 0.0933 *** | −0.0804 *** | 1.0000 | −0.0411 *** | 1.39 |
BSIZE | 0.0366 | 0.1310 | 0.1614 *** | 0.0862 * | −0.0364 | 0.0640 *** | −0.0455 *** | 1.0000 | 1.46 |
Panel A Equation (1) | Panel B Equation (2) | |||
---|---|---|---|---|
Coef. | T | Coef. | T | |
Constant | −3.672 *** | −2.94 | −3.2569 *** | −2.56 |
CCC | −0.145 ** | −2.39 | ||
ICP | −0.211 ** | −2.15 | ||
ARCP | −0.035 ** | −2.04 | ||
DPO | 0.017 * | 1.70 | ||
FSIZE | 0.754 ** | 1.95 | 0.772 ** | 1.93 |
DEBT | −0.268 * | −1.69 | −0.270 * | −1.70 |
BSIZE | 0.059 | 0.42 | 0.063 | 0.48 |
BIG | 0.146 | 1.57 | 0.150 | 1.55 |
COVID | 0.115 * | 1.72 | 0.127 * | 1.74 |
FIRMS | Included | Included | ||
YEARS | Included | Included | ||
Observations | 440 | 440 | ||
R-sq (%) | 7.587 | 7.619 | ||
Adjusted R-sq (%) | 7.302 | 7.496 | ||
F-stat | 55.841 *** | 53.110 *** | ||
Prob (F-stat) | 0.000 | 0.000 |
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Kouaib, A.; Bu Haya, M.I. Firm Performance of Saudi Manufacturers: Does the Management of Cash Conversion Cycle Components Matter? J. Risk Financial Manag. 2024, 17, 16. https://doi.org/10.3390/jrfm17010016
Kouaib A, Bu Haya MI. Firm Performance of Saudi Manufacturers: Does the Management of Cash Conversion Cycle Components Matter? Journal of Risk and Financial Management. 2024; 17(1):16. https://doi.org/10.3390/jrfm17010016
Chicago/Turabian StyleKouaib, Amel, and Mohammed Ibrahim Bu Haya. 2024. "Firm Performance of Saudi Manufacturers: Does the Management of Cash Conversion Cycle Components Matter?" Journal of Risk and Financial Management 17, no. 1: 16. https://doi.org/10.3390/jrfm17010016
APA StyleKouaib, A., & Bu Haya, M. I. (2024). Firm Performance of Saudi Manufacturers: Does the Management of Cash Conversion Cycle Components Matter? Journal of Risk and Financial Management, 17(1), 16. https://doi.org/10.3390/jrfm17010016