Abstract
ABSTRACT This paper investigates the impact of COVID-19-related disruptions on firms’ operating cycles. Demand shocks and supply chain disruptions can have unexpected outcomes on operating cycles, especially on receivables and inventories. We find that the COVID-19 pandemic caused a significant increase in firms’ operating cycle lengths. Further, we separate the operating cycle into its components and find that firms experienced an increase in both receivables and inventories; this implies longer times to collect receivables and slower-moving inventories. Furthermore, we find that firms with more resources – larger firms and higher cash flows – experienced smaller increases in operating cycles. Moreover, while firms experienced a sharp drop in profitability after COVID-19, an increase in operating cycle exacerbated the drop in profitability even more. We contribute to the literature by showing how the aftermath of COVID-19 impacted firms’ operating cycles.
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