Purpose: 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.

This 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.

Purpose: It is common that firms listed at undesirably low prices perform reverse stock splits to increase prices while decreasing the number of shares outstanding. In addition to these impacts, it is important to understand whether this operation has any side effects on the liquidity, as this is a fundamental element for the proper functioning of the financial markets. Therefore, our main goal is to analyze the effect that reverse stock splits have on the liquidity of European stocks. Methodology: To analyze the effect on the liquidity of the 30 firms, members of the STOXX Europe 600 index, which performed the 35 reverse stock splits identified between January 1, 2015, and December 31, 2019, we use the event study methodology and parametric and non-parametric tests. The analysis is done with a short-term (1 month) and a medium-term (6 months) event windows and to measure liquidity we use the turnover ratio and Liu’s (2006) LMx measure. Findings: In the short-term analysis, reverse stock splits contribute to increasing firms’ stock liquidity. In the medium-term analysis, it is not possible to draw a clear conclusion on the effects of reverse stock split on stock liquidity. Practical implications: The results have important implications for investors wishing to acquire shares in firms on the verge of executing this operation, as it clarifies the behavior of liquidity after the reverse stock split, which may influence their investment decision. They also contribute to helping the boards of directors of listed firms in the decision-making process. Originality/value: This work contributes to the financial literature on the relationship between reverse stock splits and liquidity, and to a better knowledge of European markets. Keywords: reverse stock splits, liquidity, Europe. DOI: https://doi.org/10.58869/EJABM001

Is there an optimal working capital management that minimizes European stock risk?