THE IMPACT OF CASH CONVERSION CYCLE ON PERFORMANCE: EVIDENCE FROM LISTED COMPANIES ON THE STOCK EXCHANGE OF THAILAND

Abstract

Working capital management is a critical factor associated with corporate liquidity and profitability. This study examines the impact of the cash conversion cycle on the performance of firms listed on the Stock Exchange of Thailand. Firm performance is measured using two dimensions, return on assets (ROA) and earnings per share (EPS), while controlling for firm size and debt-to-equity ratio. The sample consists of 2,444 firm-year observations from listed companies across all industries, excluding the financial sector, during the period 2020–2024. Data were analyzed using descriptive statistics, correlation analysis, and multiple regression analysis based on pooled firm-year observations. The results indicate that the cash conversion cycle is significantly and negatively associated with both return on assets and earnings per share, suggesting that shortening the period during which capital is tied up in working capital enhances firm performance. Furthermore, the nonlinear analysis reveals an inverted U-shaped relationship between the cash conversion cycle and return on assets, consistent with Trade-off Theory. In contrast, the relationship between the cash conversion cycle and earnings per share is found to be linearly negative. This study contributes to the working capital management literature by providing evidence supporting the applicability of Trade-off Theory in the context of developing countries and by demonstrating that the use of different financial performance measures may lead to different academic conclusions. Practically, the findings offer useful guidance for managers in formulating optimal cash conversion cycle policies to improve firms’ financial performance.