Corporate Governance Quality and Cash Conversion Cycle: Evidence from Jordan

Ayat S Al-Rahahleh

doi:10.5539/ibr.v9n10p140

Abstract

<p class="1main-text">This study aims at examining the impact of corporate governance quality on cash conversion cycle (CCC) in Jordan. Using OLS regression for a sample of all industrial companies listed on Amman Stock Exchange during the period (2009-2013). The results revealed that CCC is affected negatively by corporate governance quality, which provides an implication to industrial companies in Jordan to boost their compliance with corporate governance code in order to improve their working capital management efficiency. Furthermore, the outcomes showed a variation in corporate governance categories between sub-samples, which supports contingency theory that rejects the approach of “one size fits all”. The findings provide implications for future studies to deal with firm characteristics as context dependent rather than simply as control variables. The results also provide implications for regulatory bodies in Jordan that highlight the importance of “comply or explain” approach to some corporate governance rules embracing the “one size does not fit all” approach. This study fills a gap in the existing literature by studying the quality of corporate governance and by using the context dependent approach.</p>

Highlights

IntroductionThis study is mainly motivated by the global attention to corporate governance and the focus on working capital management (WCM) by researchers that followed the global financial crises
The purpose of this study is to examine the impact of corporate governance quality on cash conversion cycle of all industrial companies in Jordan
The board of directors is responsible for formulating policies related to accounts receivable, inventory purchases and maintenance, accounts payable and other policies in the company where weak policies related to accounts receivable, accounts payable and inventory management have a negative impact on the cash conversion cycle (Gill & Biger, 2013)

Summary

Introduction

This study is mainly motivated by the global attention to corporate governance and the focus on working capital management (WCM) by researchers that followed the global financial crises. In this regards, the Organization for Economic Co-operation and Development, OECD (2009) indicated that the corporations' working capital was affected by the global financial crises since these corporations faced increasing in their receivables collection period and inventories conversion period due to the decreasing in the demand for their products, which reflected negatively their working capital and their liquidity (Abuzayed, 2012). Weak corporate governance will lead to inefficient working capital management which has a negative impact on shareholder wealth (Isshaq, et al, 2009)

Objectives

Results

Conclusion