Francisco Vitorino Martins

The Impact of Working Capital Management Upon Companies’ Profitability: Evidence from European Companies

Companies can use working capital management as an approach to influence their profitability. This paper studies the impact of working capital management and its components upon the profitability of European companies. Cash Conversion Cycle is used as a comprehensive measure for working capital management and Gross Operating Profitability used as a measure for profitability. This study is based on a sample of 2,974 non - financial companies listed in 11 European Stock Exchanges for a period of 12 years: 1998 - 2009. The results of GLS and OLS regression analysis found a significant negative relationship between Receivables Collection Period, Inventory Conversion Period, Payables Deferral Period, Cash Conversion Cycle and profitability. This suggests that companies can improve their profitability by reducing the time span during which working capital is tied up within the company. An inverse relationship between liquidity measured by Current Ratio and profitability was also found and an additional analysis revealed that different levels of liquidity lead to differentiated impacts of the Cash Conversion Cycle upon operating profitability.

Real estate market risk in bank stock returns: evidence for 15 European countries

In countries with highly-developed financial systems bank portfolios have high exposure, directly or indirectly, to the real estate sector. Changes in the value of real estate can have a potentially significant impact on the default risk of banks and on their profitability as a result of high exposure to the real estate sector. This is especially critical during real estate crises, when bank losses tend to increase dramatically, placing the entire financial system at risk of collapse, as it was the case of the recent international subprime crisis. This article studies the sensitivity of bank stock returns to real estate returns in 15 European countries. The results indicate that bank stocks are sensitive to real estate market conditions. There is a positive relation between bank stock returns and real estate returns after controlling for general market conditions and interest rates changes.

On the possibility of sustainable development with less economic growth: a research note

The main purpose of this paper is to discuss whether it is possible to achieve human development without or with less economic growth. For this to happen, it is important that developed countries can maintain high levels of human development while reducing the scale of production and consumption so that developing countries can achieve greater economic growth. Using panel data from 118 countries aggregated in ten blocks of countries, we assess the influence of “growth” on “development”, as proxied by a transformed variable “Social Human Development Index” (SHDI), controlling for the influence of geo-economic factors. In particular, we analyse whether developed countries present a weaker statistical relation between GDP and the social dimension of HDI than their less developed counterparts. Results reveal that the GDP elasticity of SHDI is higher in blocks of countries where the concentration of developing countries occurs than in blocks dominated by the presence of developed countries. Thus, it is possible to envisage that a slowdown in economic activity in developed countries may occur without great sacrifice of human development, at least when it is measured by health and education components. We interpret the findings as meaning that at an aggregate level there are conditions for development to occur without or with less growth.

A análise da eficiência no setor bancário: modelo de fronteira estocástica com dados em painel para a banca portuguesa

This study addresses the productive efficiency regarding the banking costs, stressing its focus on the Portuguese banking market. This study follows the intermediation option concerning the conceptualization of the banking firm. The financial and operating costs are both considered in the efficiency analysis. The costspecification used is the Fourier functional form because of the multiproduct nature of the banking firm. The sample covers nearly all the Portuguese banks with non-consolidated panel data. The study of inefficiency is elaborated through the stochastic frontier model. The inefficiency rate is estimated on about 4%. Summing up, the yet unfinished concentration process of the Portuguese Banking Industry seems to be justified by the possibility of shrinkage of the X-inefficiency.

What Explains European Banks Risk-Taking? A Simultaneous Equations Approach

The global financial crisis has led to an increasingly focused attention on excessive bank risk-taking. One of the consequences is that the role of internal governance mechanisms (such as the board of directors) in monitoring risk has come under greater scrutiny. In this paper we examine the impact of board structure, ownership structure, risk governance mechanisms and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, board size and Chief Executive Officer (CEO) power (or CEO authority) negatively affect bank risk-taking during the financial crisis. On the contrary, institutional shareholders positively influence bank risk-taking and both the existence of a risk committee and a Chief Risk Officer (CRO) who is a member of the board have no significant impact. The results remain unchanged when applying both three-stage least squares (3SLS) and the two-stage least squares (2SLS) estimation methods as well as when all variables are winsorised. Additionally, we extend our analysis for the period before the financial crisis (proxy for “stable” periods) to test whether the impact of governance mechanisms and other determinants of risk-taking depend on environmental conditions and we conclude that it is indeed sensitive to the economic context. In fact, we find that some of governance mechanisms are relevant in crisis conditions but not in non-crisis conditions and thus, their impact depends on macroeconomic conditions.