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How does the quality of institutions influence the cash conversion cycle of firms?

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  • Chang, Chong-Chuo
  • Kyi, San-San
  • Chen, Ya-Wen

Abstract

The cash conversion cycle (CCC) is widely used as a proxy for measuring a firm's liquidity position, with a shorter CCC being desirable for efficient working capital management. While many studies explore the impact of firms' internal factors on CCC, few discuss the role of external factors such as the quality of a country's institutions. Institutional quality can be defined as a set of working rules that play a key role in the long-term growth potential of an economy. This study aims to discover the relationship between institutional quality and CCC at a firm level. The empirical findings prove that firms in economies with good institutional quality tend to maintain shorter CCC, thereby achieving more effective working capital management.

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  • Chang, Chong-Chuo & Kyi, San-San & Chen, Ya-Wen, 2025. "How does the quality of institutions influence the cash conversion cycle of firms?," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25001209
    DOI: 10.1016/j.pacfin.2025.102783
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    Keywords

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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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