Operating Liquidity, Firm Life Cycle, and Corporate Cash Adjustment: Evidence on Working Capital Dynamics Across Global Markets

Abstract

This study systematically examines the association between working-capital strategy and cash holdings and cash-adjustment in the firm life cycle. The analysis is based on a global panel of 362,994 firm-year observations for 27,181 listed non-financial, non-utility firms in 134 economies for the period 2000-2025, and utilizes static quadratic regressions, dynamic partial-adjustment models, life-cycle subsamples, institutional splits, component decompositions, and robustness tests. The results indicate that the relationship between cash conversion cycle and cash/Assets is concave and cashAssets are negatively related to non-cash working capital, consistent with the liquidity-substitution interpretation. Dynamic models suggest high levels of cash ratios and lack of full-year adjustment, but the reported system-GMM specification is rejected by important diagnostic tests and is not considered to be confirmatory. Life-cycle and institutional analyses also reveal that curvature and adjustment speed of CCCs are not uniformly the same at different stages of the life cycle and in different markets. The overall results of the study can enrich the study of corporate liquidity, indicating that the configuration of working capital, cash reserves and the adjustment cost of the liquidity mode should be examined together instead of relying on a common CCC target.