Abstract
Intangibles are, at a knowledge-based economy, the most important resources, driving companies towards systematic and sometimes unexpected returns. This paper follows a positivist approach and aims to investigate the association between the degree of intangibility, value of firms and their profitability. Based on the 500 largest European companies, rated by Financial Times, the most relevant insights emerge from the association between firms’ knowledge intensity level and its degree of profitability. These insights consolidate the evidences that immaterial resources act as drivers of future benefits and are embodied on firms’ profitability ratios.
Highlights
To Simai (2003), the assumption that information and knowledge are key drivers, both in the process of pro duction or as an essential part or the final commodities, is unquestionable and always has had impact on value cre ation
Measuring the profitability through the key performance indicator Return of Assets (ROA), Return on Equity (ROE), and Return of Capital Employed (ROCE), the most relevant findings of the empirical research evidence that there is a difference between the profitability and the firm value observed in intangible-intensive companies and tangible-intensive companies
It possible to support the assertion that financial markets can accurately perceived the importance of intangibles embodied in external key performance indi cators such as ROE, ROA, ROCE, or Tobin’s Q
Summary
To Simai (2003), the assumption that information and knowledge are key drivers, both in the process of pro duction or as an essential part or the final commodities, is unquestionable and always has had impact on value cre ation. Knowledge is embodied in in tangible assets. Lev (2001) argues that the increase in competition and the emergence of information and communication technologies has definitely changed the process of business value creation. To Ichijo (2002), only a company that generates knowledge is able to be successful in the mar ket, and only wins if it innovatively driven. A significant part of the market value of a company is not embodied in the intangible assets recognized in the balance sheet. The difference between the market value and the book value of a company represents the invisible value, embodied in non-capitalized intangibles
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