Publicly listed versus privately Owned : the cash conversion cycle Conundrum : a comparison of public and private companies in Norway

Abstract

The objective of this thesis is bipartite. Firstly, we examine the effect of working capital management on return on invested capital for Norwegian companies. Secondly, we attempt to explain the differences in working capital management between publicly listed and privately owned companies from the perspective of agency theory. More concisely, we want to investigate whether the distinctive characteristics of these two ownership structures cause different exposure to agency costs, and subsequently different cash conversion cycles. In our analysis, based on a panel of 1,129 Norwegian companies in the period from 2014 to 2018, we have found that there is a negative relationship between the cash conversion cycle and return on invested capital. These results were highly expected, considering the findings of the existing literature on this topic in other geographical markets. Moreover, we see that the drivers for this effect are mainly the management of receivables and inventory. Furthermore, we have identified significant differences in working capital practice between publicly listed and privately owned companies in Norway. In the last part of the analysis, we attempt to explain this discrepancy from an agency theory perspective. Based on our findings, there are some indications of an unexpected negative relationship between agency costs and the cash conversion cycle, but we cannot say anything conclusive the on extent to which this causes the inconsistencies in working capital policies. However, we are of the persuasion that there should be a theoretical link. Hence, we believe that this is an interesting path to follow for future research on working capital management. Keywords – Working Capital Management, Agency Cost, Public, Private