Cash Conversion Cycle and Bargaining Power in the Product Market: A Global Perspective

34 Pages Posted: 8 Aug 2022

See all articles by Rodrigo Zeidan

Rodrigo Zeidan

New York University Shanghai

Koresh Galil

Ben-Gurion University of the Negev - Department of Economics

Offer Shapir

New York University (NYU) - New York University (NYU), Shanghai

Thomas Lindner

Vienna University of Economics and Business

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Abstract

This study theoretically and empirically examines working capital management in a general setup that allows for variation in market power and financial constraints. Under asymmetric financial constraints, firms may extend trade credit; otherwise, they will use their market power to extract value from the supply chain. We test the latter behavior in an international sample that includes 21,613 firms in 83 countries, compared with 11,395 firms in the United States of America (US) for the period 1962–2017. We also use the global financial crisis of 2008 as an exogenous shock to firms’ ability to issue debt. The results demonstrate that the crisis strengthened the relationship between market power and the cash conversion cycle for firms that had a positive cash conversion cycle. The study also demonstrates that firms outside of the US are most affected by the adverse relationship between market power and working capital.

Keywords: cash conversion cycle, market power, trade credit, profit maximization, general dynamic model

Suggested Citation

Zeidan, Rodrigo and Galil, Koresh and Shapir, Offer and Lindner, Thomas, Cash Conversion Cycle and Bargaining Power in the Product Market: A Global Perspective. Available at SSRN: https://ssrn.com/abstract=4185267

Rodrigo Zeidan

New York University Shanghai ( email )

Koresh Galil

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972-8-6472310 (Phone)

Offer Shapir (Contact Author)

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Shanghai, Shanghai 200122
China

Thomas Lindner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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