Publication
EXPLORING THE RELATIONSHIP BETWEEN SHORT-TERM BORROWINGS AND PROFITABILITY IN CHINA: THE MODERATING ROLE OF CASH CONVERSION CYCLE
Publisher:
Vilnius Gediminas Technical University
Date:
26-03-2021
DOI:
10.3846/JBEM.2021.13723
Abstract: This study focuses on the moderating role of the cash conversion cycle (CCC) and its components while investigating the relationship between short-term borrowings and profitability in Chinese firms. The generalized method of moments (GMM) approach is employed on the panel data over the period 2000 to 2017. The findings reveal a significant moderating role of CCC and its components in the short-term borrowings and profitability relationship. Specifically, the firms following a conservative strategy in CCC and its components, adopt the same strategy in the external financing which lies in the long-term borrowings. Consequently, such firms require less short-term borrowings compared to the full s le. However, the firms following an aggressive strategy in the CCC and its components, do not follow the aggressive strategy in external financing that lies in the short-term borrowings. Instead, these firms adopt the conservative strategy for profit maximization and require less amount of short-term borrowings compared to the full s le. Finally, several policy options are proposed to achieve the optimum relation between short-term borrowings and profitability.