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Cash conversion cycle and corporate diversification

Yilei Zhang

In this study, I examine the relation between the cash conversion cycle and its components
and a firm’s diversification status. Using a large sample of US public firms over 1980 to 2016, I
find the inventory and receivable periods are shorter in diversified firms than focused firms. The
results suggest that diversified firms have more efficient inventory management; and have better
access to external financing which makes supply chain financing less significant in diversified
firms. There is evidence that diversified firms have longer cash conversion cycle, especially
in more recent sample years. Further research is warranted on how firms trade off the cash
balance, supply chain financing and external financing as well as the corresponding value effects