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Determinants of Portuguese Exporting Companies' Liquidity Levels

Determinants of Portuguese Exporting Companies' Liquidity Levels

Nuno Miguel Delicado Teixeira (Instituto Politécnico de Setúbal, Portugal), Rui Brites (Instituto Politécnico de Setúbal, Portugal), Inês Lisboa (CARME, ESTG, Polytechnic of Leiria, Portugal), and Rosa Galvão (Instituto Politécnico de Setúbal, Portugal)
Copyright: © 2023 |Pages: 23
DOI: 10.4018/978-1-6684-5666-8.ch002
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Abstract

This paper aims to study the variables that influence, positively or negatively, treasury management and liquidity levels required for the normal working of the analyzed companies. It was concluded that several variables studied showed significant statistical relationships with the companies' liquidity level and types of relationships that matched the initial expectations of the study. Thus, the weight of retained net income plus non-cash expenses in total net assets; the Altman discriminant analysis Z score, representative of the level of companies' financing constraints; the size of total net assets; the weight of current assets minus cash and cash equivalents in total net assets and operating profitability, showed relevant relationships with the liquidity level and can be considered determinants of this variable.
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Introduction

Traditionally, corporate finance focuses on long-term decisions, ignoring short-term financial decisions which are related to companies' day-to-day operations and impact their value (Lisboa and Teixeira, 2020). Topics related to corporate treasury and liquidity are of greater relevance to organizations’ management, especially when companies present financial difficulties and/or in moments of financial crisis or recession periods that impact and condition the banking sector and other financial entities. Thus, companies' survival and financial wealth depend on short-term decisions which are related to treasury.

This paper aims to study the variables that influence treasury management and liquidity levels needed for the normal activity of companies. For it, the 250 largest Portuguese exporters companies to the European Union market were studied. These companies represent about 80% of Portuguese exporters and 74% of total Portuguese international sales.

This work aims to contribute to a better understanding of how treasury management and liquidity levels can, in general, impact the companies’ success and their ability to internationalize. Additionally, by knowing which determinants explain companies’ liquidity level, this work helps managers to support their decision-making, debtholders to understand companies' financial needs, and the government to realize which are the main financial needs of companies.

The structure of the chapter will include a theoretical background with the main concepts associated with treasury, liquidity, and cash equivalent, and a reflection on the main theories related to companies' liquidity levels. Then, the study hypotheses are presented, followed by an explanation of the research methodology. The analysis and discussion of the results are presented after it. Finally, the general conclusions of the chapter are addressed.

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