The Journal of Accounting and Management, Vol 6, No 3 (2016)

Cash Conversion Cycle Theory and Corporate Profitability: Evidence from Non-Financial Firms Listed on the Johannesburg Stock Exchange

Emmanuel Kojo Oseifuah, Agyapong Gyekye


This study usesRichards and Laughlin’s (1980) Cash Conversion Cycle theory to investigate theimpact of working capital management efficiency and its separate components onthe profitability of a sample of 75 non-financial firms listed on theJohannesburg Stock Exchange (JSE). Panel data regression methodology was usedto analyse financial data obtained from I-Net Bridge and BF McGregor for the 10year period, 2003 to 2012 to determine the nexus between working capitalmanagement and profitability (proxied by return on assets). The study resultsare consistent with the CCC theory that: 1) there exists a negativerelationship between working capital management and corporate profitability; 2)there exist a negative relationship between inventory conversion period andprofitability; 3) there is a negative relationship between accounts receivablesconversion period and profitability; and 4) there is a positive relationshipbetween accounts payable deferral period (PDP) and profitability. The findingsthus suggest that corporate managers can create value for shareholders byreducing the CCC to an extent that it enhances its profitability.


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