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- Board gender diversity and capital structure: Evidence from the Portuguese listed firmsPublication . João, Teodósio; Lisboa, Inês; Oliveira, CéliaThis investigation analyzes the impact of board gender diversity on the financial policies of non-financial Portuguese listed firms between 2010-2019. The study applies the two-step Generalized Method of Moments (GMM) for econometric analysis. The results show that board gender diversity affects firms’ capital structure. While female directors have no determinant role in defining firm indebtedness levels, they significantly contribute to its structure. Our results demonstrate that female directors, particularly those with executive roles, consistently contribute to reducing firms’ long-term debt and prefer to issue short-term debt. Moreover, female directors tend to manage trade over financial debt, especially in older firms. Independent female directors play a significant role in smaller firms by decreasing long-term and financial debt. The study supports the notion that gender diversity on the board contributes differently to the firms’ financial policies. Additionally, the findings are in line with the assumptions of agency, resource dependence, and pecking order theories. This study shows that gender diversity promotes short-term debt as a substitute for bank loans to avoid increasing firms’ risk, which ultimately impacts the definition of financial debt levels.
- The role of liquidity in asset pricing: the special case of the Portuguese Stock MarketPublication . Miralles-Quirós, Maria del Mar; Miralles-Quirós, José Luis; Oliveira, CéliaPurpose – The aim of this paper is to examine the role of liquidity in asset pricing in a tiny market, such as the Portuguese. The unique setting of the Lisbon Stock Exchange with regards to changes in classification from an emerging to a developed stock market, allows an original answer to whether changes in the development of the market affect the role of liquidity in asset pricing. Design/methodology/approach – The authors propose and compare two alternative implications of liquidity in asset pricing: as a desirable characteristic of stocks and as a source of systematic risk. In contrast to prior research for major stock markets, they use the proportion of zero returns which is an appropriated measure of liquidity in tiny markets and propose the separated effects of illiquidity in a capital asset pricing model framework over the whole sample period as well as in two sub-samples, depending on the change in classification of the Portuguese market, from an emerging to a developed one. Findings – The overall results of the study show that individual illiquidity affects Portuguese stock returns. However, in contrast to previous evidence from other markets, they show that the most traded stocks (hence the most liquid stocks) exhibit larger returns. In addition, they show that the illiquidity effects on stock returns were higher and more significant in the period from January 1988 to November 1997, during which the Portuguese stock market was still an emerging market. Research limitations/implications – These findings are relevant for investors when they make their investment decisions and for market regulators because they reflect the need of improving the competitiveness of the Portuguese stock market. Additionally, these findings are a challenge for academics because they exhibit the need for providing alternative theories for tiny markets such as the Portuguese one. Practical implications – The results have important implications for individual and institutional investors who can take into account the peculiar effect of liquidity in stock returns to make proper investment decision. Originality/value – The Portuguese market provides a natural experimental area to analyse the role of liquidity in asset pricing, because it is a tiny market and during the period studied it changed from an emerging to a developed stock market. Moreover, the authors have to highlight that previous evidence almost exclusively focuses on the US and major European stock markets, whereas studies for the Portuguese one are scarce. In this context, the study provides an alternative methodological approach with results that differ from those theoretically expected. Thus, these findings are a challenge for academics and open a theoretical and a practical debate.
- Systematic liquidity: commonality and inter-temporal variation in the Portuguese stock marketPublication . Miralles-Marcelo, José Luis; Miralles Quirós, María Del Mar; Oliveira, CéliaThe aim of this paper is to study systematic liquidity at the Euronext Lisbon Stock Exchange. The motivation for this research is provided by the growing interest in financial literature about stock liquidity and the implications of commonality in liquidity for asset pricing since it could represent a source of non-diversifiable risk. Namely, it is analysed whether there exist common factors that drive the variation in individual stock liquidity and the causes of the inter-temporal variation of aggregate liquidity. Monthly data for the period between January 1988 and December 2011 is used to compute some of the most used proxies for liquidity: bid-ask spreads, turnover rate, trading volume, proportion of zero returns and the illiquidity ratio. Following Chordia et al. (2000) methodology, some evidence of commonality in liquidity is found in the Portuguese stock market when the proportion of zero returns is used as a measure of liquidity. In relation to the factors that drive the inter-temporal variation of the Portuguese stock market liquidity, the results obtained within a VAR framework suggest that changes in real economy activity, monetary policy (proxied by changes in monetary aggregate M1) and stock market returns play an important role as determinants of commonality in liquidity.
- A Non-Linear relation between Working Capital Management and Stock LiquidityPublication . Coelho, Tiago; Oliveira, Célia; Lisboa, InêsPurpose – Working capital management (WCM) is related to how the firm manages its credits and inventories to achieve a trade-off between its benefits and costs. It shows the manager and the firm’s efficiency, which impacts its profitability and risk. The higher the firm’s efficiency, the better investors’ perception about the firm which can impact stock liquidity. This study aims to analyze if there is an optimal point between WCM and stock liquidity. Design/Methodology/Approach – For this purpose, a panel of 1,145 firms listed on five Euronext exchanges (Amsterdam, Brussels, Dublin, Lisbon, and Paris), between 2011 and 2019, is analyzed. Stock liquidity is captured using two alternative measures – Amihud (2002) and Fong et al. (2017). Working capital management is measured through the cash conversion cycle (CCC), and its components (days sales outstanding, DSO; days sales inventory, DSI; and days payable outstanding, DPO). Non-linear relations are estimated using fixed effects models. Findings – Results reveal an inverse U-shaped relation between cash conversion cycle, and its specific component days sales inventory, and stock liquidity, suggesting that there is an optimal value of CCC and DSI that maximize stock’s liquidity. Originality/Value – Most studies focus on the impact of WCM on operational profitability or stock’s return. The impact on stock’s illiquidity is less explored, so this study contributes to the debate whether being efficient in managing working capital can influence the transaction of stocks. Two alternative measures of liquidity are used since there is no consensus about which is better. This allows us to have different perspectives of liquidity, and to capture not only the breadth and depth of stocks, but also stock rigidity. Finally, instead of analyzing a single market, this work focuses on five European stock exchanges. The study insights are important for managers, investors, and shareholders, emphasizing the potential improvement in stock liquidity through effective WCM.
- Optimal Working Capital Management and Stock Returns: Evidence from European Listed FirmsPublication . Coelho, Tiago; Oliveira, Célia; Lisboa, InêsBased on the working capital management trade-offs, this paper investigates the existence of an optimal point not only of the cash conversion cycle, but also of its components, which maximizes the stock returns of European listed firms. Most studies analyze the non- linear relationship between working capital management and accounting profitability. Studies analyzing stock returns focus on a linear relationship. Therefore, this work adds new knowledge for the literature. The relation between working capital management and stock returns is analyzed with panel data models, in which the quadratic function of cash conversion cycle, or of its components (days sales outstanding, days sales inventory, and days payable outstanding), is considered to capture the existence of an optimal point. The results confirm the existence of an optimal cash conversion cycle point that maximizes stock returns. The conclusions are relevant for managers, investors, and shareholders, as they prove that firms able to efficiently manage working capital trade-offs reward shareholders with higher returns.
- Is there an optimal working capital management that minimizes European stock risk?Publication . Coelho, Tiago; Lisboa, Inês; Oliveira, CéliaPurpose: This paper investigates the existence of an optimal point of the cash conversion cycle (CCC) and its components, which minimizes firms’ stock risk. Methodology: This study applies fixed effect models to a sample of firms listed in Euronext exchanges, from 2011 to 2019. Stock risk is proxied by the standard deviation of stock returns. The quadratic function of the CCC and its components (days sales outstanding – DSO, days sales inventory – DSI, and days payable outstanding – DPO) is applied to capture an optimal point of the working capital management (WCM). Results: Results show the existence of a U-shaped relation between WCM and stock risk, suggesting the existence of an optimal CCC and DSI point that minimizes stock risk Originality: To the best of our knowledge, this is the first paper that explores the existence of an optimal CCC point and also an optimal point of its components (DSO, DSI, and DPO), which minimizes stock risk. This paper is also the first to assess the impact of WCM on stock risk of firms listed in European stock exchanges. The results are also relevant to managers, shareholders, and investors since they demonstrate that firms can minimize the risk of their stocks by practicing an optimal WCM.