Impact of Cash Conversion Cycle and Financial Stability on Firm Value
Abstract
This study examines the relationship between working capital management, financial stability, and firm value in the Consumer and Industrial Goods sectors of the Nigerian Exchange Group (NGX) from 2013 to 2023. Utilizing robust Ordinary Least Squares (OLS) regression, the study evaluates the impact of key components of the Cash Conversion Cycle (CCC)—Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), and Days Payables Outstanding (DPO)—on firm value, measured by Tobin's Q. Additionally, the study investigates the influence of overall financial stability, represented by the Altman Z-score, on firm value. The results reveal that while DPO positively influences firm value, DSO exhibits a negative but statistically insignificant relationship. CCC negatively impacts firm value, indicating that prolonged cash conversion cycles are detrimental to firm value. Financial stability shows a strong positive relationship with firm value, emphasizing the importance of maintaining financial health. The findings suggest that firms should optimize their working capital components and focus on enhancing financial stability to maximize firm value. The study offers valuable insights for financial managers and policymakers in developing strategies that balance operational efficiency with financial robustness.
Keywords
Working Capital ManagementCash Conversion Cycle (CCC)Financial Stability
References
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