Impact of Business Cycles on Retail and Wholesale Firms’ Asset Values Leverage Ratios and Cash Flows : Evidence from U.S. Listed Firms

This study focuses on the impact of the 2001 recession as well as the subsequent expansion on U.S. trade (i.e., retail and wholesale) firms' short-term assets and liabilities. The paper also analyzes the differential effects on long-term debt and cash flow levels between retail and wholesale firms over the business cycle. We test for differences in inventory levels, trade credit extensions, and working capital financing between the retailers and wholesalers. Our results show that retailers tend to do worse in recessions when compared to the wholesalers. We find that net working capital and long-term debt levels of wholesalers are not significantly affected by the business cycle, whereas retailers have significantly less net working capital and more long-term debt in the recessionary period compared to the expansionary period. Interestingly, wholesalers are seen to increase their operating cash flows and have a larger cash outflow for financing during the recession. On the other hand, while retailers do not show any significant change in cash flows from operations or financing during the recession, their cash flows for investments dropped significantly, meaning that they had to cut their investments due to the recession