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The study of an intangible-intensive company’s behavior under uncertainty

Priority areas of development: economics
2014
The project has been carried out as part of the HSE Program of Fundamental Studies.

Goal of research: The research aims to investigate the special issues of intangibles managed under conditions of uncertainty and asymmetric information. It is conceived to find out the empirical evidence of these phenomena. 

Methodology: theoretical modeling of an economic agent’s behavior, empirical testing of input-output-outcome value creation chain based on intellectual resources.

Empirical base of research: The database of more than 1650 public European companies over the period 2004-2013.

Results of research: The results of research project contribute to the improvement of the managerial decision making process, develop the theory of intellectual resources and its practical implication.

Theoretical contribution:

  • The production functions of intangibles in corporations and small and medium size enterprises (SMEs) were elaborated. The interrelation of companies’ intangibles and its capacity to added-value creation were put in the model.
  • Structural “triangle model” to consider simultaneous impact of intangibles on the outperforming of companies measured by EVA (economic value added) and the value creation expressed by MVA (market value added) was designed.

Methodological contribution:

  • The approach for measurement of intangible input and output on the basis of publicly available information was suggested and validated.
  • The metrics of six components of intangibles were elaborated and empirically proved. This model consists of management and human resources capabilities, internal process and innovation capabilities, customer loyalty and networking capabilities. The necessity for separate management, measuring and controlling of each intellectual capital element was emphasized. The database of more than 1650 public European companies over the period 2004-2011 provided the opportunity to reveal the reliability of each of the six IC elements. Moreover, the statistical analysis revealed the contribution of each indicator to its correspondent element. This is helpful for managers in their decision making process. Meanwhile, all indicators can be estimated based on publicly available data. That provides the unique possibility for benchmarking and comparative analysis. The results proved the overlapping effect of the six elements discovered.

Empirical contribution:

  • Two intangible-intensive strategies (profiles) of companies were discovered. With a benchmark of low profile intangible-intensive ones allow better outperforming and value creation. Moreover, the intangible-intensive strategy protects companies during economic recession and enables faster recovery after.
  • The increasing return to scale for intangibles was established. This phenomenon is enhanced by economic crisis conditions.
  • The discovered production function revealed that intangible resources are more important for SMEs. It appears that intangible resources identified through assessable data became compulsory or core resources for large companies that are commonly shared by all members of an industry, and offers no competitive value. In that sense the investigated types of intangible resources for SMEs can be treated as advanced knowledge that enables firm to create competitive advantage. Three types of intangible resources that should be developed by European SMEs were discovered: human resource capabilities, innovation, internal process capabilities. These resources can enhance SMEs’ performance and deliver to them more benefits than for large companies. Such empirical evidence contributes to the field of performance management where firm size is concerned.
  • The application of structural equation modeling enabled a simultaneous estimation of the triple linkage of intangibles, outperforming of companies and value creation. At the same time this technique decreases the problem of endogeneity. The evidences of discrepancies in value drivers and factors of outperforming have been found. All groups of intangibles positively contribute to MVA creation but some of them appeared to be irrelevant or even negative for EVA creation. The apparent discrepancy established in research is that managers tend to accumulate intangible resources that are positively recognized by investors. These empirical results justified the presence of the agency problem in the value creation process driven by intangibles. Only two (Human Resources Capabilities and Business Process Capabilities) out of five intangibles have shown significant positive influence on EVA and MVA. The investments in Innovation and Networking Capabilities increase shareholders expectations but seem to be inefficient for companies’ outperforming. The interpretation of the evidence established points out that public companies are significantly influenced by the distorted incentives created in the corporate governance for managers of a company. They are likely trying to satisfy the perceptions of investors instead of creating real competitive advantages for a company. That means that managers are short-term oriented setting positive signals for companies’ investors.
  • The particular principal-agent conflict in companies that intensify intangibles was revealed. Intangibles bring extra information asymmetry in shareholder-managers relationship. That stimulates opportunistic behavior of companies’ CEOs by undertaking investment decisions for intangibles.
  • The relationship between individual characteristics of mutual fund managers in Russia and fund’s performance was established. The results of the research supported the idea that the individual characteristics reflect mutual fund managers’ individual intangibles, which help to earn abnormal alpha. The results have two main practical implications. Firstly, they can be used as a simple screening system for the investor who is deciding on mutual fund choice. The investor can use the results of the paper to select a mutual fund without complicated calculations. This is important for Russia due to the relatively low small investors’ familiarity with sophisticated econometrics. Secondly, the results of this analysis can be useful for HR departments of mutual funds for hiring the fund managers. Usually such departments lack information about managers’ qualification, this paper provides them with information about which managers’ characteristics better reflect their skills, and, respectively, the ability to earn abnormal alpha.
  • The study of the human capital in sport offers insights into the influence of individual intellectual capital of football coaches’ on their salary. It can be useful and applicable in different ways. Firstly, the possibility to codify intellectual capital of a person enables to analyze core competencies that are necessary for success achievement in a particular activity or profession. This approach is applicable in fields where it is possible to distinguish a contribution of a particular employee, particularly in sports. The results of the study confirmed that the variation in football coaches salaries explained primarily by their personal abilities.  Secondly, football clubs’ managers and owners can use the results of the study as a kind of benchmark for coaches’ salary determination.  The coaches’ wage may be derived from the club’ positions in the table and coaches’ image.

Level of implementation, recommendations on implementation or outcomes of the implementation of the results. The results can be implemented by investment decision making and by policy making decisions.

Publications:


Oskolkova Marina Aleksandrovna, Tomé E., Naidenova I. N. Personal welfare and intellectual capital: the case of football coaches // Journal of Intellectual Capital. 2014. Vol. 15. No. 1. P. 189-202. doi
Naidenova I. N., Parshakov P., Chmykhov A. S. Soccer Sponsor: Fan Or Businessman? / NRU Higher School of Economics. Series FE "Financial Economics". 2014. No. WP BRP 28/FE/2014.
Barajas A., Rodríguez P. Spanish Football in Need of Financial Therapy: Cut Expenses and Inject Capital / Пер. с исп. // International Journal of Sport Finance. 2014. Vol. 9. No. 1. P. 73-90.
Shakina E. A., Barajas A. The Changing Role Of Intellectual Resources During The Economic Crisis Of 2008-2009 / NRU Higher School of Economics. Series MAN "Management". 2014. No. WP BRP 17/MAN/2014.
Coates D. C., Wicker P., Feiler S., Breuer C. A Bivariate Probit Examination of Financial and Volunteer Problems of Non-Profit Sport Clubs // International Journal of Sport Finance. 2014. Vol. 9. No. 3. P. 230-248.
Lopez Iturriaga F. J., Vallelado González E., Crisóstomo V. L. Nonfinancial companies as large shareholders alleviate financial constraints of Brazilian firm / Пер. с исп. // Emerging Market Review. 2014. Vol. 18. P. 62-77.
Shakina E. A., Molodchik M. Intangible-driven value creation: supporting and obstructing factors // Measuring Business Excellence. 2014. Vol. 18. No. 3. P. 87-100. doi
Shakina E. A., Barajas A. The Dynamics of Intellectual Resources During the Economic Crisis // Economic Research-Ekonomska Istraživanja. 2014. Vol. 27. No. 1. P. 861-881.
Shakina E. A., Barajas A. Value Creation Through Intellectual Capital In Developed European Markets // Journal of Economic Studies. 2014. Vol. 41. No. 2. P. 272-291. doi
Naidenova I. N., Parshakov P., Zavertiaeva M. A., Tome E. Look For People, Not For Alpha: Mutual Funds Success And Managerial Intellectual Capital / NRU Higher School of Economics. Series FE "Financial Economics". 2015. No. WP BRP 42/FE/2015 .
Gasparetto T. M., Fernandez-Jardon Fernandez C. M., Barajas A. Brand Teams And Distribution Of Wealth In Brazilian State Championships / NRU Higher School of Economics. Series MAN "Management". 2014. No. Management WP BRP 30/MAN/2014.
Barajas A., Sánchez-Fernández P., Salgado-Barandela J. Strategic Approach to the Economic Dimension of Sport // Rivista di Diritto ed Economia dello Sport. 2014. Vol. 10. No. 3. P. 125-145.
Evgeniia V. Kuminova, Anna A. Bykova. Did Relational Capital Matter during the Financial Crisis? // International Journal of Learning and Intellectual Capital. 2014. Vol. 11. No. 4. P. 286-305. doi
Shakina E. A., Barajas A. Intangible-Intensive Profile Of A Company: The Key To Outperforming / NRU Higher School of Economics. Series MAN "Management". 2014. No. WP BRP 22/MAN/2014.
Molodchik M., Shakina E. A., Barajas A. Metrics for the elements of intellectual capital in an economy driven by knowledge // Journal of Intellectual Capital. 2014. Vol. 15. No. 2. P. 206-226. doi