B. Appendix 2 – Climate regulation timeline implementation
6. Conclusion, implications, and limitations
Winemaking is one of the most representative economic activities in several coun- tries as a result of the variety of fine products and the convergence of know-how, craftsmanship, and traditions of producers and Portugal is a respected country of producers with excellent and well-known products.
The wine sector has been studied from various aspects. In recent years, the culture of quality wine has been enhanced also through sizeable investments by both large corporations and medium- and small-sized companies.
However, the most relevant research databases (Web of Science, Scopus, Google Scholars, and EBSCO) indicate a scarcity of research on the economic and financial performance of these types of businesses.
Taking this into account, it is feasible to conclude that this study contributes to the literature on financial analysis of the wine business by addressing a gap in the litera- ture on financial indicators of liquidity and performance.
In this sense, the purpose of this research is to demonstrate the importance of short-term financial indicators on the profitability of Portuguese wine firms.
The profit position of a firm is influenced by numerous factors and in this study, the authors wanted to additionally explore the impact of some liquidity indicators in the Portuguese wine firms in the period 2014–2017.
It was found that an increase in the level of net working capital increases profitabil- ity of the company and leverage was negatively related to ROA. Firms policies promot- ing the decrease of DRO result in increased profitability. In this sense, the guarantee of low levels of general indebtedness helps wine firms increase their profitability.
The above speaks in favor of a conservative strategy of working capital manage- ment of Portuguese wine firms and this position is in line with the type of firms.
Mostly of Portuguese wine firms are family firms and their management strategy tends to be more conservative than non-family firms [51].
The estimation model emphasized that the profitability of Portuguese wine firms, measured by ROA, is less explained by liquidity variables than by other qualitative variables, such as management style (whereas the family is on the Board, or not) and financing policies.
The poor adjustment might be also associated with the specificities of the wine sector, the fact that it is a regulated market, which is largely geared toward exports (variable not included in the estimation model), usually with more traditional or less professional management and which have a specific production cycle (with long periods of the operating cycle).
In terms of practical implications, we were able to show that, on average, the Portuguese wine sector manages its cash cycle conservatively, likely because it is a family-run business with few naturally aggressive managers or risk-takers, and that, based on the findings, they are not properly concerned with liquidity measures in
their daily management. It is critical to enlarge and update this sample to more firmly establish these conclusions.
To better explain the performance of these organizations, and overcome some limitations, future developments must include:
• An updated sample, divided into family firms and non-family firms, with internationalization level included;
• Inclusion of other dependent variables, such as EBITDA or ROE, as well as independent variables, such as firm size;
• A comparative analysis of firms from other wine-producing countries and.
• Inclusion of qualitative variables such as governance and/or reward systems.
Acknowledgements
This work is supported by national funds, through the FCT–Portuguese Foundation for Science and Technology under the project UIDB/04011/2020.
Author details
Carmem Leal1*, Bernando Cardoso2, Rogério Bessa2, José Vale3, Rúben Nunes2 and Rui Silva1
1 CETRAD—University of Trás-os-Montes e Alto Douro, Vila Real, Portugal 2 University of Trás-os-Montes e Alto Douro, Vila Real, Portugal
3 CEOS.PP, Polytechnic Institute of Porto, Porto, Portugal
*Address all correspondence to: [email protected]
© 2022 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Impact of Short-Term Management on Portuguese and Spanish Firms ’ Performance
Carmem Leal, Diogo Rocha and Elisabete Neves
Abstract
An effective and efficient working capital management ensures companies a greater ability to survive in an increasingly competitive and challenging business world and therefore plays a key role in the manager’s operational and financial deci- sions. Thus, the main objective of this chapter is to show empirically the extent to which working capital management influences the measures of business performance evaluation. To achieve the proposed objective, the ROA, ROE, and Tobin’s Q were used as measures of performance. For this study, data from Portuguese and Spanish companies were used, which are listed on Euronext Lisbon and the Madrid Stock Exchange, respectively, resulting in a final sample of 106 companies. The methodol- ogy used to test the hypotheses formulated was dynamic panel data methodology (with GMM system) for a period between 2010 and 2016. The results obtained in this research show, in a general way, that there are significant differences in the determi- nants of performance depending on the samples used, whether they are the Spanish Sample or the Portuguese Sample.
Keywords:working capital management, business performance measures, financial analysis, dynamic panel data, Iberian companies
1. Introduction
The literature on the corporate finance area has been directed toward long-term management, more specifically to investment issues [1], capital structure [2], dividends [3], and business evaluation [4].
Although medium- and long-term management (LTM) is extremely important for the creation of a company’s value, it is necessary that short-term management is carefully treated, since individual LTM decisions cannot create value for the company alone.
More recently, companies have been placing greater emphasis on the impact that short-term management has on corporate performance because a large part of the account balances presented in the accounts relates to short-term investments and resources [5].
It should be noted that managers must perceive a balance between each compo- nent of short-term management to maximize the company’s value and ensure a higher organizational performance as well as a better competitive advantage [6].
In the last years, and as a result of the increase in competitiveness among compa- nies, the management of current assets as an aid in the search for greater profitability has been the target of the Academy’s interest [5, 7, 8].
A wide range of authors [8–10] considers that the Cash Conversion Cycle (CCC) is one of the most important short-term management measures and, therefore, the most used to study this subject, since in these author’s studies they measure the impact that this variable has on corporate performance.
Thus, the Cash Conversion Cycle assumes a relevant role in the present study, since it is considered that this variable encompasses a set of preponderant factors for the short-term management and the firms’survival. These factors can be translated into three concepts: Average Collection Period (ACP), Average Stocking Period (ASP), and Average Payments Period (APP). This being said, in this chapter, six models will be investigated and each of the dependent variables (ROA, ROE, and Tobin’s Q) will have two models. The existence of two models for each of the depen- dent variables is due to the fact that in the first instance each of the components of the CCC (ACP, ASP, and APP) is tested individually, and only then the CCC is tested in a single variable. Each of the six previously referenced models will be tested on two samples, namely the Spain Sample and the Portugal Sample.
In this sense, the present work aims to analyze the impact of short-term manage- ment on the performance of Iberian companies. For this, some hypotheses will be raised according to the existing literature, that is intended to be corroborated, to understand which are the determining variables in the explanation of corporate per- formance. Specifically, there will be used as explanatory variables, the Cash Conver- sion Cycle, ACP, ASP and APP, and current ratio. On the other hand, leverage, firm size, and tangible fixed assets will be used as control variables.
Additionally, it is intended to increase the literature related to the topic addressed throughout this chapter, since this subject is still little debated and discussed. After the crisis of 2008, short-term management assumed a greater preponderance, and conse- quently, the number of published studies on short-term management [11] increased.
This study will be directed to large companies in Portugal and Spain, listed on the corresponding stock exchanges, for the period between 2010 and 2016. The final sample resulted in 106 companies, which resulted in a total of 660 observations.
In short, this article is organized as follows—in Section 2 the literature review and respective hypotheses will be presented. Section 3 presents the methodology for the study. Sections 4 and 5 will present the main results and the conclusion,
respectively.