Cash Conversion Cycle and Investment Cash Flow Sensitivity

Authors

Ilker Yilmaz, Dhofar University, OMANFollow

JEL Classification System

D25, G31, O16

Abstract

The purpose of this article is to investigate the effect of firms’ cash conversion cycle on their investments’ sensitivity to cash flows. Using the data of 167 energy companies from 2010 to 2019, we run dynamic panel regressions for the models based on the Euler equation. We employed a generalized method of moments (GMM) as the estimation technique. The analyses revealed two main results. The first is that there is investment cash flow sensitivity for the sample firms indicating the existence of financial constraints. The second is that the cash conversion cycle has a significant positive effect on investment cash flow sensitivity. To find out the effect of firm size, we also run the models by dividing the sample into small and large firms and found a significant difference between the two groups.

Recommended Citation

Yilmaz, Ilker (2023) "Cash Conversion Cycle and Investment Cash Flow Sensitivity," DLSU Business & Economics Review: Vol. 32: No. 2, Article 10.
DOI: https://doi.org/10.59588/2243-786X.1162
Available at: https://animorepository.dlsu.edu.ph/ber/vol32/iss2/10