Cash Conversion Cycle and Current and Future Performance: Evidence from Iran's Capital Market

Economic conditions in times of boom or recession have different effects on working capital and the performance of companies. The purpose of this research is to investigate the relationship between the cash conversion cycle and the current and future performance of companies listed on the Tehran Stock Exchange.

The statistical sample of the present paper, which consists of 113 firms, has a 9-year period from 2012-2020. In this research, to test the hypotheses, multiple regression analysis using the panel data method was used to analyze the data. In addition, the Return On Equity (ROE) profitability measure was used as a performance index of firms. In the present paper, performance was studied in four periods of the current year (t), next year (t+1), (t+2) and (t+3).

The results show that the length of the cash conversion cycle has a negative and significant relationship with current profitability (t); While the relationship between this variable and future profitability (t+1) has been positive. In addition, the results showed that there is no significant relationship between the research variables in the years (t+2) and (t+3). Also, the negative relationship between the length of the cash conversion cycle and current (t) and future (t+1) profitability is dependent on the size of the company; While no relationship was found with future profitability (t+2) and (t+3).

Originality/Value: 

Based on the results of this research, it can be said that attention to the issue of cash conversion cycle can have a significant effect on the current and future performance of companies, and companies with an optimal level of working capital can formulate their appropriate operational strategies.