Competence Value Emersion: A Key to Sound Practices in Entrepreneurial Finance: From 'Q' to 'T' Ratios in the North-Eastern Italian Experience

Abstract

The determinants of the value of entrepreneurial competences in an incomplete financial market contexts where the Entrepreneur’s behaviour matters are examined. The study reveals that time is the economic link between marginal productivities of the capital assets and that of the human competences. The successful Entrepreneur behaves in order to give marketability to skills riding a cycle that transforms them into a corporate hallmark. This being the case, we provide a detailed description of the basics of a methodology to measure the “competence value” and to compare it against standard goodwill estimations. We suggest that contingent-claim solutions based on a corporate behavioural finance approach can help enterprises to transform competence value into goodwill. Results of empirical analysis over a sample made of more than 3,000 Italian Companies in the very competitive manufactural district of Treviso are reported. Empirical evidence shows that the proposed Intato-T-Ratio is a good estimator of competence value, stronger than the widely diffused Tobin-Q-Ratio. Allocating investments according to the competence value can exploit immediately 51% of hidden values and allow higher growth rates during an Entrepreneurial cycle lasting 13 years on average. Aborting competence value in credit allowances procedures might have a dramatic financial impact particularly on SMEs after the adoption of the next Basel-3 agreement.