DOES CREDIT POLICY AFFECT THE PERFORMANCE OF SAUDI CONSTRUCTION COMPANIES?

Abstract

This paper examines the relationship between the length of receivable conversion period as a measure of credit policy and operating profit margin as a measure of operational performance of construction firms listed at Saudi stock market. This relation is examined using the dynamic panel data two-steps robust system estimation for the period 2004–2013. The analysis is applied at the levels of the full sample and divisions of the sample into crisis and non-crisis periods, by sector and by size. The results show negative and significant relationship between receivable conversion period as a measure of credit policy and profitability for the full sample. The result of the relationship between receivable conversion period and profitability for small firms is negative and significant. The results also show negative and significant relationship between receivable conversion period and profitability of real estate companies and negative and insignificant relation for building and construction companies.