A Study of the Relationship between Net Trade Cycle and Liquidity of Small Firms

Abstract

This paper aims to examine the relationship between the efficiency of working capital management, firm’s size and liquidity. This relation is analyzed using Generalized Method of Moment System Estimation applied to dynamic panel data for a sample of 5802 non-financial firms listed in the major US markets for the period 1990-2004. The results show negative and significant relationship between net trade cycle as a comprehensive measure of the efficiency in working capital management and liquidity for small firms.