The nexus between cash conversion cycle and operating performance: novel evidence from MENA region

Abstract

Purpose

This article examines the relationship between the cash conversion cycle (CCC) and profitability in countries in the Middle East and North Africa (MENA) region.

Design/methodology/approach

The authors used dynamic panel methodology to analyze a dataset consisting of 395 firms from nonfinancial sectors in the MENA countries from 2013 to 2018. The authors developed several models consisting of different measures of profitability, CCC and the components of CCC. The control variables were used in the models at different levels.

Findings

The results bring out a significantly positive relationship between the CCC and profitability. However, mixed results have been obtained for industry and country details. The quadratic model revealed an inverted U-shaped relationship and the presence of an optimal point of CCC. The robustness checks have confirmed the results of the main models.

Practical implications

The results of the study imply that corporate managers and policymakers ought to pay equal attention to the components of CCC when developing working capital policies and be aware of the optimal level of CCC.

Originality/value

This paper handles the endogeneity problem that is inherent in the relationship. It investigates and confirms the nonlinear characteristics of the relationship. To the best of the authors' knowledge, this study is the first to use dynamic panel models to examine the CCC and its relationship with profitability in the MENA context.

Citation

Yilmaz, I. and Nobanee, H. (2023), "The nexus between cash conversion cycle and operating performance: novel evidence from MENA region", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-03-2023-0310