Department/School

Entrepreneurship

Date of this version

2011

Document Type

Article

Keywords

Entrepreneurship, Small Firm Finance, Cash Flow Management

Abstract

This study investigated the relationship between cash conversion cycle and levels of liquidity, invested capital, and performance in small firms over time. In a sample of 879 small U.S. manufacturing firms and 833 small U.S. retail firms, cash conversion cycle was found to be significantly related to all three of these aspects. Firms with more efficient cash conversion cycles were more liquid, required less debt and equity financing, and had higher returns. The results also indicate that small firm owners/managers may be reactive in managing cash conversion cycle. The study highlights the importance of cash conversion cycle as a proactive management tool for small firm owners.

Published in

Journal of Small Business and Entrepreneurship

Citation/Other Information

24(3), 381-396.

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