Cash flow management and manufacturing firm financial performance: A longitudinal perspective
Abstract
A firm's cash flow policies, which manage working capital in the form of cash receivables from customers, inventory holdings, and cash payments to suppliers, are inexorably linked to the firm's operations. Building on earlier research, this study: (i) extends prior studies by examining the relationships between changes in cash flow measures and changes in firm financial performance using a longitudinal sample of firm data; and (ii) investigates the direction of the relationship between quarterly changes in cash flow positions and firm financial performance. This study is conducted using the Generalized Estimating Equations (GEE) methodology to analyze a longitudinal sample of eight quarters of cash flow and financial performance data from 1233 manufacturing firms. The analyses find that changes in the widely used Cash Conversion Cycle (CCC) metric do not relate to changes in firm performance; however, changes in the less used Operating Cash Cycle (OCC) metric are found to be significantly associated with changes in Tobin's q. This examination of how changes in specific cash flow measures relate to changes in Tobin's q shows that both reductions in Accounts Receivables (measured as Days of Sales Outstanding [DSO]) and reductions in Inventory (measured as Days of Inventory Outstanding [DIO]) relate to firm financial performance improvements that persist for several quarters. Endogeneity tests of whether a firm's cash flow management strategy leads to changes in firm performance or if the cash flow strategy is a byproduct of firm performance suggest that reductions in DSO lead to improved firm financial performance.
Keywords
Cash flow; Supply chain management; Operations management; Manufacturing; Panel analysis
Article outline
Highlights
Abstract
Keywords
1. Introduction
2. Theoretical framework and hypothesis development
2.1. Measures and metrics
2.2. Prior cash flow management research
2.2.1. Theoretical commonalities
2.2.2. Prior methodologies
2.2.3. Prior findings
2.3. Static versus dynamic views of cash flow management
2.4. Research hypotheses
2.4.1. Analysis of cash flow position changes and changes in firm financial performance
2.4.2. Granger causality analysis
3. Measures and methods
3.1. Sample and data
3.2. Measures
3.3. Methodology
3.3.1. Analysis of dynamic cash flow management and lag effects
3.3.2. Granger causality analysis
4. Results
5. Discussion and implications
6. Conclusions and future research
Appendix. Fixed-effects robustness analyses
References
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یکشنبه, 09 آبان 1395 13:52
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