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    The cash conversion cycle spread: International evidence

    Access Status
    Fulltext not available
    Authors
    Chen, Catherine Huirong
    Choy, Siu Kai
    Tan, Yongxian
    Date
    2022
    Type
    Journal Article
    
    Metadata
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    Citation
    Chen, C.H. and Choy, S.K. and Tan, Y. 2022. The cash conversion cycle spread: International evidence. Journal of Banking & Finance. 140: 106517.
    Source Title
    Journal of Banking & Finance
    DOI
    10.1016/j.jbankfin.2022.106517
    ISSN
    0378-4266
    Faculty
    Faculty of Business and Law
    School
    School of Accounting, Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/89106
    Collection
    • Curtin Research Publications
    Abstract

    The cash conversion cycle (CCC) is important for fundamental analysis as an indicator of management effectiveness in cash and financing. However, there is a lack of empirical evidence for its implications on asset pricing except for the very recent findings that high CCCs negatively predict stock returns in the U.S. By investigating 47 developed and emerging markets from 1993 to 2018, we find a mild CCC effect across the globe. The Low-minus-High equal-weighted hedge portfolios sorted by components of CCC yield significant Fama-French five-factor alphas ranging from 0.277 to 0.730% per month. Our results are consistent with a mispricing explanation by analyzing earnings prediction, announcement returns around future earnings, and limits of arbitrage although there is also some evidence for a risk-based explanation. Moreover, the CCC effect is stronger in emerging markets than developed markets and for markets with more political risk and less integrated with the global market.

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