Current Assets Management of Small Enterprises

Abstract

Purpose - – The purpose of this paper is to investigate the relationship between a firm’s net trade cycle, its size and liquidity. Design/methodology/approach - – The relation between the firm’s net trade cycle and its liquidity is examined using Generalized Method of Moment Dynamic Panel-Data System Estimation with Robust Standard Errors for a sample of 5,802 US non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and Over the Counter Market for the period 1990-2004 (87,030 firm-year observations). The analysis is applied at the levels of the full sample and divisions of the sample by size. Findings - – The results show negative and significant relationship between net trade cycle, as a comprehensive measure of efficiency in working capital management, and liquidity for small firms. Originality/value - – Most of the existing literature focusses on the large firm’s experience of working capital management. Small firms generally face liquidity problems and have limited access to external capital, and studies on their efficiency in working capital management are scant. Thus the present study is useful in understanding the relation between the firm’s net trade cycle and liquidity of small firms.