Cash Flow Management and Manufacturing Firm Financial Performance: A Longitudinal Perspective

A firm\u27s cash flow policies, which manage working capital in the form of cash receivables from customers, inventory holdings, and cash payments to suppliers, are inexorably linked to the firm\u27s operations. Building on earlier research, this study: (i) extends prior studies by examining the relationships between changes in cash flow measures and changes in firm financial performance using a longitudinal sample of firm data; and (ii) investigates the direction of the relationship between quarterly changes in cash flow positions and firm financial performance. This study is conducted using the Generalized Estimating Equations (GEE) methodology to analyze a longitudinal sample of eight quarters of cash flow and financial performance data from 1233 manufacturing firms. The analyses find that changes in the widely used Cash Conversion Cycle (CCC) metric do not relate to changes in firm performance; however, changes in the less used Operating Cash Cycle (OCC) metric are found to be significantly associated with changes in Tobin\u27s q. This examination of how changes in specific cash flow measures relate to changes in Tobin\u27s q shows that both reductions in Accounts Receivables (measured as Days of Sales Outstanding [DSO]) and reductions in Inventory (measured as Days of Inventory Outstanding [DIO]) relate to firm financial performance improvements that persist for several quarters. Endogeneity tests of whether a firm\u27s cash flow management strategy leads to changes in firm performance or if the cash flow strategy is a byproduct of firm performance suggest that reductions in DSO lead to improved firm financial performance

An Exploration of ‘Sticky’ Inventory Management in the Manufacturing Industry

Traditional models examining relationships between firm resources and revenues assume that the many expenses and asset holdings change in proportion to changes in demand. However, research has found that for many costs and assets assumed to be variable, the magnitude of a change in a cost or asset in proportion to a change in revenue is smaller during periods when revenue decreases compared to the change in the cost or asset when revenue increases. Costs and assets which behave in this manner have been denoted as ‘sticky’ costs or assets. This study examines if inventory in the manufacturing industry is managed in a ‘sticky’ manner and what implications inventory stickiness has on firm performance. Utilising firm panel data over a 25-year time window we find that inventory stickiness does exist amongst manufacturers and that it has negative implications for firm performance

The Operational Impacts of Chief Supply Chain Officers in Manufacturing Firms

Many firms have elevated their supply chain management decision-making responsibilities through the creation of ‘Chief Supply Chain Officer’ (CSCO) positions. This is widely attributed to the recognition that superior supply chain operations can generate a competitive advantage. Prior studies have found that firms with CSCOs outperform firms without CSCOs along many financial dimensions. However, these prior efforts did not examine the pathways by which these improvements occur. This study addresses this gap in the literature by investigating whether supply chain characteristics of manufacturing firms differ within firms with CSCOs. To explore this, we investigate the relationship between CSCOs and operational dimensions of supply chain performance using data from the 10-year period between 2008 and 2017. We find that the presence of a CSCO in a firm is associated with shorter cash conversion cycles, lower levels of operational slack, and larger buffers of inventory during periods of high market instability

Do Online Consumers Value Corporate Social Responsibility More in Times of Uncertainty?: Evidence from Online Auctions Conducted During the Onset of the COVID-19 Pandemic

The relationships between Corporate Social Responsibility (CSR) and consumer behaviors have been widely explored in the literature. From the consumer standpoint, it has been shown that individuals largely want to be socially responsible actors and that, more than ever, they consider the CSR aspects of products or services when contemplating purchasing decisions. We utilize data from 23,247 online auctions conducted before and during the COVID-19 pandemic to analyze in what way consumer preferences might be influenced by how the CSR characteristics of products are touted in their descriptions. We find that a greater CSR emphasis is positively associated with an increased prospect of an online auction item selling. Additionally, we find CSR is valued more by consumers during a period of economic hardship and social uncertainty (COVID-19). Finally, we find that profit-seeking behaviors by intermediary auction house brokers undermine the effect of CSR on consumer purchasing behavior

The Role of Socioemotional Wealth in Entrepreneurial Persistence Decisions for Family Businesses

Many factors may influence entrepreneurial persistence in various contexts. For example, scholars find that family business entrepreneurs are more persistent than other entrepreneurs. However, the reasons why they are more persistent are not as well known. Utilizing a conjoint experiment with 64 entrepreneurs and 376 decisions, this paper examines the influence of socioemotional wealth (SEW) on persistence decisions in a family business context. The results of the Hierarchical Linear Modelling show that the expected financial returns, expected non-financial benefits, expected switching costs, and probability of expected outcomes influence entrepreneurial persistence decisions. Further, family business entrepreneurs with higher levels of SEW focus more on non-financial benefits when facing alternative opportunities. This study also provided empirical evidence for different dimensions of SEW. The results show that the emotional attachment of family members and the renewal of family bonds to the firm are effective indicators, which provide a direct measurement of SEW. The findings of this study increase scholarly understanding of both entrepreneurial persistence literature founded in threshold theory and SEW literature

A Newsvendor Approach to Compliance and Production under Cap and Trade Emissions Regulation

Since the 1990s, governmental agencies have increasingly turned to market based cap and trade programs to control the emission of pollutants. Firms subject to cap and trade regulation are typically required to acquire emissions allowances via open auction markets. The cost to acquire allowances may impose a substantial financial burden on a firm. While emissions reduction efforts may eliminate some firm\u27s need to acquire additional allowances, there are still numerous firms that need to purchase additional allowances on the open market. This study presents a new forward buying heuristic, designed for those firms that need to purchase emissions allowances via auctions, which reduces the impact of emissions allowance acquisitions on the firms\u27 financial performance. The heuristic, designated as the Newsvendor Production Planning with Emissions Allowance Forward Buying (NPPAFB) method, applies a forward buying algorithm to determine the number of periods for which to forward buy allowances, the current production order up to level, and the current and future emissions allowance requirements (which serves as the order up to level for allowance purchases). Additionally, NPPAFB also authorizes unused emissions allowances to be sold when market conditions are favorable. Compared against three existing production planning and allowance procurement strategies, a simulation exercise finds that the NPPAFB method significantly reduces a firm\u27s emissions allowance expenditures. These results indicate that heuristic can be readily adopted by any firm that is required to procure emissions allowances via open markets in an effort to improve the firm\u27s profitability

Metro Meals on Wheels Treasure Valley Employs a Low-Cost Routing Tool to Improve Deliveries

In this paper, we discuss a project in which we developed a spreadsheet-based system that interfaces with a no-fee driving-directions application programming interface to quickly and accurately build a travel time and distance matrix and then rapidly determine near-optimal delivery-route schedules using a modified genetic algorithm. To the best of our knowledge, the method we used to create the travel matrix had not been employed previously in an academic study. The tool was tested and refined in a humanitarian setting—a local branch of the Meals on Wheels Association of America (now Meals on Wheels America), an organization that combats hunger and poverty by providing food to individuals who are in need. The tool, which is currently being utilized by Metro Meals on Wheels Treasure Valley, has substantially reduced the time required to plan deliveries and has also reduced the delivery driving times by approximately 15 percent

Generating Efficient Rebalancing Routes for Bikeshare Programs Using a Genetic Algorithm

Growth in urban areas often leads to problems such as increased traffic congestion and poor air quality. To help alleviate these issues, shared mobility networks have been launched in hundreds of cities worldwide to provide citizens with alternatives to personal autos and to other less sustainable methods of transport (Fishman, 2016; Zhang et al., 2015). Shared mobility includes carsharing, ridesharing, scooter sharing and bikesharing (SAE, 2018). Bikeshare programs allow users to pick up bicycles (often at hub locations), utilize the bicycle for a journey, and return it to a location within the system (DeMaio, 2009). While bicycle sharing has been in existence for many years in various forms, the advent of modern telecommunications (i.e., cellular technology and the internet) have enabled these programs to proliferate

Operational Leanness and Retail Firm Performance Since 1980

Lean is one of the most pervasive and powerful paradigms in Operations and Supply Chain Management. As a theory, lean has been well tested in manufacturing. Lean in retail has received less attention. There is good reason to think that seminal constructs from lean, such as inventory slack reduction and capacity slack reduction, may explain a great deal of the variance in retail firm performance. Therefore this paper tests lean-based propositions pertaining to the relationships between inventory slack, capacity slack, market instability and firm market performance. Using retail firm data from a 35 year period, we find that lean thinking in its basic unadorned form helps explain retail performance remarkably well. From both a snapshot and quarterly difference perspective and regardless of whether we look at capacity slack or inventory slack, lean produces superior, lasting returns for retailers

Which Diversity Measures Best Capture Public Company Value?

Prior research has shown that companies\u27 diversity efforts lead to improved company performance and market value. However, measuring and comparing diversity is a challenge for firms since there is not a comprehensive, universally accepted method to measure firm diversity. This study evaluates three publicly available proxy measures (the Human Rights Campaign Foundation\u27s Corporate Equality Index (CEI) ratings and Bloomberg\u27s environmental, social, and governance (ESG) scores, and a Board of Directors gender diversity index) that report on various aspects of firm diversity to assess which are most closely associated with long-term company value using panel regression. We find that higher CEI ratings and Bloomberg\u27s ESG scores are significantly associated with higher Tobin\u27s q levels. A Granger causality analysis found evidence that diversity efforts at firms lead to higher future market performance, not that firms with better market performance are more likely to increase their diversity