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- International Effect on Family SME Financial Distress PredictionPublication . Lisboa, Inês; Costa, MagaliUnderstanding the reasons of default risk is crucial to avoid the firm's bankruptcy. The purpose of this work is to analyze the impact of internationalization on firm's probability of distress. For it, this chapter aims to propose a model to predict default specific to family SMEs (small and medium enterprises). An unbalanced panel of 10,832 firms over the period from 2012-2018 is analyzed. Ex-ante criteria to classify firms in default or compliant is used. International SMEs have lower probability of default than domestic firms, and compliant firms export more. Results show that export ratio is an important determinant of the probability of default. Moreover, the ratios of liquidity, profitability, size, leverage, efficiency, cash flow, and age are also relevant. Moreover, these ratios explain default risk of both groups international and domestic SMEs. The proposed model has an accuracy of 92.9%, which increases to 95.6% if only export SMEs are analyzed.
- Is Additional CEO Remuneration a Performance Driver? DAX CEOs EvidencePublication . Costa, Magali; Lisboa, Inês; Marzinzik, RenéThis study aims to understand the impact of the additional remuneration of the Chief Executive Officer (CEO) over the mean remuneration of the board of directors on firms’ financial performance. The objective is to understand if the highest compensation of the CEO is a firm performance driver. In addition to the impact of total remuneration, the different remuneration components were split and analyzed. An unbalanced panel data of listed companies in DAX–Germany over the period from 2006 until 2019 is analyzed. Using dynamic methodology to estimate the models, the results show that higher additional remuneration positively explains higher firm performance measured using both accounting and market measures. The impact is also evident when additional remuneration components are analyzed. These results support the tournament theory, since when CEOs feel rewarded, they are more efficient in increasing the firm’s performance. Moreover, the firms’ financial characteristics, as well as macroeconomic factors, are also relevant to explaining its performance.
- Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector EvidencePublication . Costa, Magali; Lisboa, Inês; Gameiro, AnaThis work analyses whether financial information quality is relevant to explaining firms’ probability of default. A financial default prediction model for SMEs (Small and Medium Enterprises) is presented, which includes not only traditional measures but also financial reporting quality (FRQ) measures. FRQ influences the decision-making due to its impact on financial information, which has repercussions on the accounting ratios’ informativeness. A panel data of 1560 Portuguese SMEs in the construction sector, from 2012 to 2018, is analysed. First, firms are classified as default or compliant using an ex-ante criterion which allows us to identify signs of financial constraints in advance. Then, the stepwise method is employed to identify which variables are more relevant to explain the default probability. Results show that FRQ measures, namely accruals quality and timeliness, impact firms’ defaulting, supporting their relevance in predicting financial difficulties. Finally, using a logit approach, the accuracy of the model increased when FRQ variables were included. Results are confirmed using “new age” classifiers, namely the random forest methodology. This work is not only relevant to the extant financial distress literature but has also relevant implications for practice since stakeholders can understand the impact of financial reporting quality to prevent additional risks.
- Reputation, return and risk: A new approachPublication . Febra, Lígia; Costa, Magali; Pereira, FábioCorporate reputation has deserved attention in recent years from firms and researchers given its impact on creating a competitive advantage and on keeping a sustained superior performance. However, the impact of corporate reputation on risk, in addition to being less studied, still presents controversial results. Thus, the purpose of this study is to, simultaneously, analyze the effect of corporate reputation on stock return and risk. A model based on firms’ financial market data was assessed through a panel data analysis which included 84,745 firm-year observations, which occurred between January 6th, 2009, and December 31th, 2019, from a full sample of 156 United States firms listed in the New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ), 82 of which were listed in Repu- tation Quotient (RQ). The results show that there are no significant differences between listed and not listed firms in Reputation Quotient concerning firms’ abnormal returns and firms’ systematic risk. This can be justified because stock prices adjusted instantly to the corporate reputation, which supports the market efficiency hypothesis. This study may provide important insights into the literature: firstly, although the impact of reputation on performance has gained attention in recent years, the firsts studies essentially analyze the reverse impact; secondly, this work aims to, simultaneously, study the effect of corporate reputation on return and risk, being the impact on the risk an area still little explored and with controversial results; thirdly, this study distin- guishes itself by using a set of firms listed in a reputation ranking and a set of firms not listed, but with similar characteristics in terms of market capitalization, highlighting the impact of reputation communication through media rankings.
- Analysis of Family SMEs Default Risk: the Portuguese CasePublication . Lisboa, Inês; Costa, Magali; Santos, FilipaThis work aims to study the default risk of family SMEs (small and medium enterprises) in Portugal, more specifically in the Leiria region. For this purpose, a panel data of 2,658 firms over the period 2012-2017 is analyzed. Using an ex-ante classification of defaulting, results suggest that there are more compliant firms and the number of defaulting firms have decreased over the period analyzed. Then, using a logit regression technique and six variables to predict default obtained through the stepwise methodology, results show that defaulting firms compared to compliant firms are usually younger, with higher difficulties in generating return and in being efficient, and more indebted. The Z’-score model was used as a robustness test, and results suggest that this model is inaccurate to the present reality and this specific sample. Therefore, new coefficients were estimated to increase the model’s efficiency. The proposed and the modified Z’-score models have an accuracy of 88.74% and 85.49%, respectively.