Cash Conversion Cycle and Firm Liquidity Analysis for Consumer Product Sectors in Malaysia

Abstract

The present paper seeks to examine the relationship between cash conversion cycle and liquidity of Malaysia firms in consumer product sector for a period of 10 years with a total of 550 observations. This issue is crucial to be measured as it will identify whether firms efficiently manage their working capital or not. This study used panel data, correlation analysis and panel least square (Ordinary Pooled Least Square). The empirical findings suggested that liquidity of the firms has a statistically significant relationship with cash conversion cycle. During the period under study, the results on the relationship signified that the longer the period of cash conversion cycle, the higher the ability of the firms to convert their assets to cash, thus maximizes the shareholder's value. However, firm size has not significantly explained the variations in the liquidity of Malaysian firms, which acts as a control variable in this study. The study underscores the need for future investors as they need to reassure the position of particular firm as well as for firm managers to increase their shareholders value.