Victor Mendes

This paper examines the association between geoeconomic fragmentation (GEF) and corporate capital structure dynamics. Extending dynamic trade-off models beyond their implicit assumption of a stable global economic environment, we conceptualize GEF as a systemic risk factor that is consistent with higher adjustment costs and a higher option value of delaying financial rebalancing. We measure GEF using the Composite Geoeconomic Fragmentation Risk Index (CGFRI), which captures structural vulnerability, policy uncertainty, coercive restrictions, and realized fragmentation. Using a dynamic partial-adjustment framework for 121,454 non-financial firms across the European Union over 2015–2024, we find that heightened GEF risk is associated with greater observed leverage persistence and a lower observed speed of adjustment toward target leverage. This baseline inertia association is robust across alternative estimators, instrument sets, variable definitions, and sample restrictions. Because observed adjustment reflects both the underlying incentive to adjust and the frequency of refinancing events (Danis et al., 2014), the estimated decline in the speed of adjustment should be read as a lower bound on the underlying change. Among firms with large deviations from target — the only regime for which the specification is well identified — the association reverses, consistent with a forced-adjustment mechanism whereby the cost of continued misalignment outweighs the option value of waiting; because the low-deviation comparison group could not be reliably estimated, we treat this result as exploratory. We find no robust evidence that firm-level exposure to external finance dependence, cash-flow volatility, growth opportunities, sector sensitivity, supply-chain complexity, or financial constraints systematically moderates the baseline association. The pooled EU association nevertheless masks meaningful cross-country heterogeneity: it is sensitive to the exclusion of any one of the three largest national samples, and an apparent German- vs. French-origin divergence reflects Germany specifically rather than legal origin.

This paper proposes a conceptual framework for understanding geoeconomic fragmentation risk as a multidimensional condition and operationalizes it through a composite index for the European Union (EU-27), linking macro-level fragmentation to firm-level strategic behavior under uncertainty. We argue that fragmentation is not captured by traditional indicators of macroeconomic risk, political instability, or trade openness. Rather, it is a multidimensional condition in which cross-border economic relations become strategically contested, politically coercible, and institutionally uncertain. To formalize this argument, we synthesize Knight's distinction between measurable risk and genuine uncertainty, Luttwak's conception of geo-economics as strategic conflict, and Turner's systemic account of interdependence, engaging with contemporary IPE scholarship on weaponized interdependence, sanctions effectiveness, trade discrimination and industrial policy, and geoeconomic statecraft. On that basis, we propose a composite index built from four dimensions: structural vulnerability, policy uncertainty, coercive restrictions, and realized fragmentation. The measure draws on country-risk data, uncertainty indexes, sanctions databases, and bilateral trade and investment data. The result is a framework that sharpens the concept of geoeconomic fragmentation risk and offers an operational path for empirical testing in corporate finance, international business, and political economy.

This study examines how two forms of financial literacy—objective financial literacy (OFL; demonstrated knowledge of interest rates, inflation, and diversification) and perceived financial literacy (PFL; self-assessed confidence in financial matters)—relate to financial wellbeing through distinct capability pathways, and whether self-regulation conditions these links. We use three nationally representative cross-sections from Portugal (2015, 2020, 2023; N = 3648), a European setting marked by declining objective literacy and constrained market participation. Guided by capability theory, we propose a dual-lane model in which OFL operates through behavioural capability (BC; enacted saving, investing, and planning behaviours) to shape objective financial wellbeing (OFW; resilience, assets, and saving), while PFL operates through perceived capability (PC; financial self-efficacy and perceived control) to shape subjective financial wellbeing (SFW; perceived security, satisfaction, and freedom from financial stress). We also test whether non-impulsive, future-oriented behaviour (NIB) strengthens the associations along the objective lane. Structural equation models provide partial support for the dual-lane model, revealing three asymmetries with implications for European policy: (1) the link between behavioural capability and objective financial wellbeing weakens in 2023, suggesting that macroeconomic conditions can undercut even prudent financial behaviour; (2) perceived financial literacy directly predicts subjective financial wellbeing, but perceived capability does not mediate this association, indicating that financial confidence shapes wellbeing independently of self-efficacy; and (3) non-impulsive, future-oriented behaviour amplifies the association between objective literacy and objective wellbeing in 2015 and 2023 but not in 2020, showing that the benefits of self-regulation are context-dependent. The findings inform financial education and policy across Europe by distinguishing intervention levers for objective versus subjective outcomes and identifying conditions under which behavioural interventions are most effective.

This paper investigates how geoeconomic fragmentation (GEF) affects corporate capital structure dynamics. Challenging the implicit assumption of a stable global economic order in canonical trade-off models, we hypothesise that GEF constitutes a systemic, regime-changing shock that not only elevates adjustment costs but also destabilises the target leverage ratio itself. Using a dynamic partial adjustment framework on a panel of 121,454 medium-to-large non-financial firms across the European Union from 2015 to 2024, we document a significant reduction in the speed of adjustment (SOA) towards target leverage under heightened GEF risk. This inertia is most pronounced for firms with larger target deviations, indicating a breakdown of the market-disciplining mechanism. We identify three primary transmission channels-elevated cost of external finance, increased cash flow volatility, and strategic inertia driven by real options-and find that the effect is heterogeneous, amplified for firms in geoeconomically sensitive sectors and for financially constrained firms. However, firms with complex global supply chains exhibit faster adjustment, consistent with restructuring-driven deleveraging. Our findings quantify the "cost of fragmentation" in terms of heightened market frictions and offer actionable insights for policymakers and corporate treasurers navigating an era of systemic geoeconomic risk. The paper bridges corporate finance with strategic management, revealing how financing decisions are embedded in broader organisational processes of adaptation and resilience.

We combine transaction-level brokerage data from a large Portuguese bank with detailed geospatial wildfire records to study how indirect exposure to extreme climate events affects household portfolio decisions. Exploiting geographic variation in retail investors' proximity to wildfires, we show that individuals nearby wildfire events significantly reduce their risktaking. This adjustment occurs through both increased selling and reduced purchases of risky assets in the months following a fire. The effects extend well beyond the burned perimeter and persist over time. We further document a substantial increase in the probability of fully liquidating portfolios and exiting the stock market, along with a decline in stock market entry. We find no evidence that these responses are driven by changes in wealth or background risk; instead, the evidence is consistent with a fear-based mechanism. Finally, we find that postwildfire portfolios significantly underperform relative to pre-wildfire portfolios over 6-, 12-, and 24-month horizons.

Using a unique multi-wave dataset from nationally representative surveys in Portugal (2015, 2020, and 2023), this study extends the household finance literature by examining the mechanisms linking financial literacy to capital market participation. We propose and test a moderated mediation framework, arguing that the relationship is channeled through the mediating roles of financial resilience and self-efficacy and is contingent upon sociodemographic moderators. Our findings reveal a decline in average financial knowledge between 2015 and 2020/23, with persistent gaps across socioeconomic groups. Empirical results from count, logit, and ordered logit models provide strong evidence for partial mediation; financial literacy significantly enhances a household’s financial resilience, which in turn is a strong positive predictor of participation in stocks, bonds, and mutual funds. Furthermore, we find that perceived financial knowledge is a more powerful direct driver of participation than objective knowledge. Crucially, these pathways are powerfully moderated by income and education, highlighting that socioeconomic status is a fundamental boundary condition for converting knowledge into investment behavior. The results challenge simplistic direct-effects models and suggest that policy initiatives aimed at boosting market participation, such as the Portuguese National Plan for Financial Education, must look beyond knowledge dissemination to also foster financial resilience, self-efficacy, and address structural inequalities.

Using a unique multi-wave dataset from nationally representative surveys in Portugal (2015, 2020, 2023), this study extends the household finance literature by examining the mechanisms linking financial literacy to capital market participation. We propose and test a moderated mediation framework, arguing that the relationship is channeled through the mediating roles of financial resilience and self-efficacy and is contingent upon sociodemographic moderators. Our findings reveal a significant decline in average financial knowledge over the period, with persistent gaps across socioeconomic groups. Empirical results from count, logit, and ordered logit models provide strong evidence for partial mediation: financial literacy significantly enhances a household's financial resilience, which in turn is a strong positive predictor of participation in stocks, bonds, and mutual funds. Furthermore, we find that perceived financial knowledge is a more powerful direct driver of participation than objective knowledge. Crucially, these pathways are powerfully moderated by income and education, highlighting that socioeconomic status is a fundamental boundary condition for converting knowledge into investment behavior. The results challenge simplistic direct-effects models and suggest that policy initiatives aimed at boosting market participation, such as the Portuguese National Plan for Financial Education, must look beyond knowledge dissemination to also foster financial resilience, self-efficacy, and address structural inequalities.

Based on the information gathered on mutual fund trades executed between 1998 and 2017 by 31,513 individual investor clients of a major Portuguese bank, we study the relationship between the disposition effect, financial literacy and trading experience. We find that mutual fund investors exhibit a strong disposition effect. The tendency to hold losers is partially offset with literacy: a university degree reduces the propensity to hold on to loser funds, in addition to greater financial knowledge and stronger math skills. Literacy also plays a role in shaping the way experience affects this bias. Evidence of the disposition effect remains after considering redemption fees, bad emotions, irrational beliefs, market sentiment and the existence of someone to blame. Given that the existence of the disposition effect entails substantial costs for investors, higher levels of literacy benefit investors. The implementation of measures that accommodate investor reaction to poor performances may also help to reduce the disposition effect.

We investigate the hypothesis that the same investors trade differently in different markets. More precisely, we discuss the hypothesis that the same investors trade derivatives differently than stocks. We use a proprietary database containing the transaction records of 129,461 investors over a 10-year period, and we select investors holding both stocks and warrants in their portfolios. We compare the trading behavior of these investors in the stock market and in the warrant market, controlling for investors’ sociodemographic characteristics and behavioral biases (overconfidence, the disposition effect and pursuit of the pleasure of gambling). Even though investors are the same in both markets, our results clearly show that the determinants of the trading activity in stocks and in warrants are not all the same, implying that investors trade stocks differently than warrants. More precisely, overconfident investors have higher warrant trading activity and lower domestic stock trading activity, and investors who are pursuing gambling pleasure or are prone to the disposition effect trade warrants more frequently (but do not more frequently trade stocks).