Herding behaviour and sentiment: Evidence in a small European market 

Abstract

This work studies herding behaviour in a small European market, by analysing the stocks that constitutedthe Portuguese stock PSI-20 index, for the period between 2003 and 2011. The two different approachesused to measure herding intensity led to different results, suggesting that measurements of the herdingphenomenon are sensitive to the method used. Consequently, there is a need for further research into themethodology used to test this phenomenon. Additionally, the study analyses the relationship betweenherd behaviour and investor sentiment, an area that has been little explored. In applying causality teststo the impact of sentiment on herd behaviour, only weak evidence is found that sentiment influencesherding.

Cash flow management and manufacturing firm financial performance: A longitudinal perspective

Abstract

A firm's cash flow policies, which manage working capital in the form of cash receivables from customers, inventory holdings, and cash payments to suppliers, are inexorably linked to the firm's operations. Building on earlier research, this study: (i) extends prior studies by examining the relationships between changes in cash flow measures and changes in firm financial performance using a longitudinal sample of firm data; and (ii) investigates the direction of the relationship between quarterly changes in cash flow positions and firm financial performance. This study is conducted using the Generalized Estimating Equations (GEE) methodology to analyze a longitudinal sample of eight quarters of cash flow and financial performance data from 1233 manufacturing firms. The analyses find that changes in the widely used Cash Conversion Cycle (CCC) metric do not relate to changes in firm performance; however, changes in the less used Operating Cash Cycle (OCC) metric are found to be significantly associated with changes in Tobin's q. This examination of how changes in specific cash flow measures relate to changes in Tobin's q shows that both reductions in Accounts Receivables (measured as Days of Sales Outstanding [DSO]) and reductions in Inventory (measured as Days of Inventory Outstanding [DIO]) relate to firm financial performance improvements that persist for several quarters. Endogeneity tests of whether a firm's cash flow management strategy leads to changes in firm performance or if the cash flow strategy is a byproduct of firm performance suggest that reductions in DSO lead to improved firm financial performance.

Governance, product market competition and cash management in IPO firms

Abstract
This study evaluates the link between CEO governance heterogeneity, power structure of the firm, and product market competition on various facets of post-IPO cash policy. Our results suggest that post-IPO cash holdings as well as marginal value of cash reserves are higher under a founder CEO governance regime relative to non-founder CEOs. Concentrating board power in the hands of founder CEOs however, reduces their ability to maintain higher post-IPO cash reserves. Our results also suggest that product market competition influences both the level and marginal value of cash reserves in the hands of founder CEOs. Further, we find that stronger internal governance reduces the tendency of IPO firms to deploy excess cash reserves to fund internal investments in excess of industry rivals. Finally, our results suggest that excess cash reserves in competitive industry environments lead to superior post-IPO operating performance.

The relationship of operational innovation and financial performance—A critical perspective

Abstract
Operations management designs, schedules, and controls organizational processes to increase productivity by using methods such as Just-in-Time (JIT)/Lean Manufacturing, Total Quality Management (TQM) or Environmental Management Systems (EMS). Following implementation, managers generally want to determine the impact of such operational innovations on firm performance. Past studies analyzed financial ratios to prove the usefulness of the operational methods; however, findings are mixed. While some reported positive relationships between operational innovations and financial performance, others found no or inconsistent relationships. Motivated to uncover explanations for said inconsistencies, this paper takes a critical look at the appropriateness of the profitability ratios Return on Asset (ROA), Return on Equity (ROE) and Basic Earning Power (BEP) in determining the impact of a given operations strategy on firm performance. Focusing on JIT/Lean Manufacturing, the relationship between these ratios and inventory management ratios is analyzed. Fixed-effect regression shows that no consistent relationship between ROA, ROE, BEP and inventory management ratios exists. This result may be explained, as the profitability of a firm is affected by at least two factors: results from its operations, and how these are financed (e.g. usage of cheap debt, which enhances profitability). This paper suggests that the impact of an individual operations strategy is difficult to isolate from other firm activities, such as its financial management. Hence, profitability ratios such as ROA, ROE and BEP that aggregate all of a firm's activities may not be suitable metrics to determine the effect of JIT/Lean Manufacturing methods on financial firm performance.

The short of it: Investor sentiment and anomalies

Abstract
This study explores the role of investor sentiment in a broad set of anomalies in cross-sectional stock returns. We consider a setting in which the presence of market-wide sentiment is combined with the argument that overpricing should be more prevalent than underpricing, due to short-sale impediments. Long-short strategies that exploit the anomalies exhibit profits consistent with this setting. First, each anomaly is stronger (its long-short strategy is more profitable) following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Finally, sentiment exhibits no relation to returns on the long legs of the strategies.