Working Capital Management and Firm Value in Bangladesh: Do Cash Conversion Cycle Components Matter Differently? (International Journal of Economics and Finance)

Summary

• The study covers 20 manufacturing firms listed on the Dhaka Stock Exchange from 2018 to 2022.p.1
• The 20 selected firms cover 54.35% of the manufacturing sector's market capital, out of 204 firms with total market capitalization of BDT 2,183 billion.p.4
• The average Tobin's Q was 3.34, ranging from 0.65 to 12.01.p.6
• Typical values were 128 days for CCC, 128 days for DIH, 47 days for DSO and 47 days for DPO.p.6
• The CCC coefficient is -0.00693 and the DIH coefficient is -0.0121, while DSO (0.00284) and DPO (0.00158) are insignificant.p.8
• In lagged models DIH is -0.012 and DSO is 0.023, both significant, while DPO is -0.001.p.9

Key insights

1. Shorter cash conversion cycles are associated with higher Tobin's Q, supporting a positive valuation effect of working capital efficiency.p.10
2. Inventory holding period (DIH) has a significant negative effect on firm value in both contemporaneous and lagged models.p.10
3. DSO is insignificant contemporaneously but significant in the lagged model, so its effect should be interpreted cautiously.p.10
4. DPO remains insignificant in both specifications, so there is limited evidence that payment timing independently influences firm value.p.10
5. The one-year lagged specification does not confirm persistence of the aggregate CCC effect.p.10
6. The highest VIF is 2.59 and the mean VIF is 1.81, so multicollinearity is not a serious concern.p.7