(The) cash conversion cycle spread in the Korean stock market

Abstract

The cash conversion cycle (CCC) is defined as the time it takes for a company to convert its investments in inventory into cash flows from sales and is usually regarded as a parameter of management performance. Although, there are some studies about the relation between CCC and financial profitability, CCC as a stock return predictor is rarely discussed. Wang (2019) shows that a zero-investment portfolio using industry-adjusted CCC earns positive strong alpha in US stock market. This study examines CCC using the firms listed in the Korean stock market from 2000 to 2018. The results show that a zero-investment portfolio that buys the lowest CCC deciles stocks and shorts the highest CCC deciles earns significant positive alpha. Therefore, the CCC has predictive power, even when controlling for major return predictors.