Effect of growth stage of the life cycle on the relationship between cash flow management and financial performance

In this research, we investigate whether a company’s cash flow management policy has a significant impact on the company's performance and whether the effect is immediate or delayed. We also examine whether the growth stage of the life cycle of the company would lead to a moderation of the relationship between the company’s cash flow management policy and the company’s performance.

For this study the population includes 155 companies listed on Tehran Stock Exchange from 2007 until 2014. We select the data for each company from the Tehran Stock Exchange website which is valid.  Our analysis of whether the performance of a company is significantly affected by its cash flow management policy involved multivariate regression using panel data. We used the software, Eviews 7 for analyzing the data.

For investigating and calculating the companies’ performance we use Tobin-Q. Also  cash flow management equals days of sales outcome plus days of inventory plus days to pay creditors. We test three main hypothesis and ten sub hypothesis.    

The preliminary results of this study showed that better cash flow management can potentially improve a companies financial performance. Further, our results also showed that the relationship between the performance of companies and cash flow management policy is consistent with the Granger (1969) causal relationship using econometric and cross-spectral methods. We also show that the growth stage of the life cycle of companies does not affect the company performance and the cash flow management system.

Keywords: cash flow management, life-cycle stage of growth, financial performance,