FINANCING THE OPERATING CYCLE: CORPORATE LEVERAGE ACROSS FIRM LIFE CYCLES AND FINANCIAL SYSTEMS

Abstract

This study investigates the relationship between the cash conversion cycle and firm leverage during the firm's life cycle in different economic settings. The panel includes 134 economies with 330,575 firm-year observations for the period 2000–2025. The quadratic regressions suggest a U-shaped benchmark relationship, with minimum estimated leverage at approximately 184 days. The profiles of Mature and Decline firms show minima around 200 days, while the aggregate Growth model does not identify a statistically supported minimum. Advanced economies have an upward-curving relationship, while emerging market and developing economies have a downward-curving relationship. Industry and year effects and lagged regressors preserve the benchmark pattern, while firm fixed effects and alternative estimators provide less consistent support. The results indicate that operating-cycle assessments should take into consideration the development of the firm and the economic environment.