Endogenous value creation: managerial decisions on intangibles

Abstract

Purpose This study aims to explore value creation through intangibles in corporations, taking into consideration the endogenous nature of managerial decisions. It is stated that intangibles bring extra information asymmetry into a company and make managers and investors’ goals less aligned. Design/methodology/approach A theoretical model is elaborated and empirically tested on the assumption that managers, while investing in intangibles, simultaneously make a company competitive and attractive to investors. The authors use a conceptual model of endogenous value creation to test how intangibles affect outperforming of a company and provoke the expectations of investors. The research is carried out on a sample of more than 1,650 European companies covering the period from 2004 to 2011. Structural equation modelling is applied for the purposes of empirical analysis. Findings The authors reveal a diverse impact of intangibles on outperforming of a company measured by economic value added and its ability to create market value. The study discovers that managers are prone to indicate positive signals to investors rather than create sustainable competitive advantages. Practical implications This research emphasizes on the particular importance of awareness of policymakers, namely, companies’ top managers, about the outcomes of their decisions. Decision-making in public companies should involve as much deliberation as possible about the potential impact of what is decided. Originality/value This work contributes primarily to the field of corporate finance in companies that use intangibles. The endogenous process of value creation is modelled and tested. As a result, a number of essential problems in agent relationships in intangible-intensive corporations are discovered.

The performance effect of intellectual capital in the Russian context

“…On the one hand, scholars such as Arend (2009) and Zacharias et al (2015) have discovered the importance of the multilevel approach in understanding the heterogeneity of company performance. On the other, the emerging research stream devoted to intangible-driven performance, as navigated by scholars such as Inkinen (2015), Molodchik et al (2012) and Shakina, Molodchik and Barajas (2017), provides empirical evidence of the crucial role played by intangibles in strategic actions. One of the drawbacks discovered in this pool of research concerns the manner in which industry and firm effects were considered.…”

“…The Russian business environment was chosen as a case study for discovering the industry effects on the intangible-performance link (Andreeva and Garanina, 2016; Shakina, Molodchik and Barajas, 2017). We justified the selection of the Russian economy as being an appropriate context by taking into account three main issues: the challenges faced by the Russian government, in particular its weak institutions and the low rate of innovation (Klochikhin, 2012); the high level of industry heterogeneity with regard to intangibles and the pivotal role of these resources in bridging the gap between the productivity of Russian companies and that of those based in developed countries (Shakina, Molodchik and Barajas, 2017).…”

“…As Rosstat reported in 2016, the share of innovative products indicated high variance, from 1.1 per cent in machine manufacturing to 4.7 per cent in chemicals, 6.1 per cent in food and 16.9 per cent in transport manufacturing. According to a study by Shakina, Molodchik and Barajas (2017), productivity in the construction sector is three times lower than in the energy and chemical industry, whereas it is twice as high as in the trade sector.…”

Do companies disclose intellectual capital in their annual reports? New evidence from explorative content analysis

“…A considerable literature addresses the ratio of intangible assets to total book value in the evaluation of IC intensity. This indicator is widely considered one of the most reliable proxies of intangible intensity (Molodchik et al, 2012;Naidenova and Parshakov, 2013;Sellers-Rubio et al, 2007;Shakina and Barajas, 2012;Shakina et al, 2017), even though it does not fully reflect all dimensions of IC due to IC's sophisticated nature. In particular, using the book value of intangible assets as a proxy of intangible intensity can lead to the underspecification of IC by ignoring a significant part of it.…”

Comparison of organizational cultures from a transitional economy and a knowledge economy: Empirical study from Serbia and Southern California

“…It is generally accepted that at the end of the twentieth century the developed economies of the world evolved from an industrial paradigm based on tangible assets, to a so-called knowledge economy -based on intangible assets (knowledgebased assets) (Andrews & Serres, 2012;Asiaei & Bontis, 2019;Millar, Lockett, & Mahon, 2016;Shakina, Molodchik, & Barajas, 2017). Not only is the economic environment exposed to this transition, but the concepts of the evolution of society into a knowledge society and the evolution of cities into knowledge cities are very present in the literature (Carrillo, 2015;Metaxiotis, Carrillo, & Yigitcanlar, 2010).…”