Firm Value Creation Research Articles

Value Creation and Tension in Coopetition: The Emergence of Virtuous and Vicious Cycles

Literature on tension in coopetition has focused almost exclusively on ‘simultaneity tension’, which is rooted in the interplay of simultaneous competition and cooperation. Our paper identifies and unpacks a distinct ‘value tension’ which occurs due to simultaneous firm value creation and joint value creation in coopetition. We layout incompatibilities between firm value creation, which is collaborative, and joint value creation, which is cooperative, and articulate the inherent challenges of pursuing both simultaneously. Efforts to pursue both can pull resources in opposing directions, forego scale and scope advantages, and undermine isolating mechanisms that are at odds with each other. We illuminate positive and negative synergies depending on the extent to which firm value creation and joint value creation are pursued simultaneously and how the ensuing tension is managed. We suggest that subsequent behaviors may reinforce the positives, leading to virtuous cycles, or negatives, leading to vicious cycles. Our integration of the coopetition literatures on tension and value with broader strategic management discourse regarding value creation provides novel future-focused insights concerning coopetition and interorganizational relationships.

An attention-based perspective on growth and value creation of firms in creative industries

Drawing on an attention-based perspective, we explore growth’s cognitive and behavioral underpinnings in creative industries, which are characterized by craftmanship, imagination, artistic quality and innovativeness. Market leaders and followers of seven creative sectors in the Netherlands have been studied through a matched pair case study design. This article suggests that for entrepreneurial firms to develop (instead of stagnating or demising), founders need to understand the value creation and conversion processes in vigor within the industry. For firms to grow by means of an expansion of their markets, founders need to create resource advantages vis-à-vis other firms in the industry, which could lie in an internationalization or a digitalization vantage. Firm founders in creative industries create value opportunities that lead to firm development and growth not despite of, but because of their quality focus, which accrues to reputation advantages and impact. We discuss the generalizability of our findings and the saliency of existing growth measures.

Value Creation and Appropriation in Firms: Methodological Challenges and Research Opportunities

The stakeholder value creation and appropriation (VCA) approach is a new lens for understanding how the economic value created through the firm’s activities is shared among its immediate stakeholders—employees, customers, suppliers, government, and capital owners. A series of recent articles in the Strategic Management Journal have conceptualized the approach, developed the method, and shown its application in comparative case study analysis (Garcia-Castro and Aguilera, 2015; Lieberman, Garcia-Castro and Balasubramanian, 2017; Lieberman, Balasubramanian and Garcia-Castro, 2018; Kern and Gospel, 2020). The approach holds potential beyond the Strategy field: as a tool for investigating how firm-level decisions and practices create winners and losers, but also as a new way of linking these micro-level patterns to macro-level pressures and outcomes, thereby helping Management scholars contribute to addressing one of the world’s grand challenges. The need to better understand inequality in and around organizations has been acknowledged in recent years (Suddaby, Bruton and Walsh, 2018; Amis, Mair and Munir, 2020; Bapuji, Ertug and Shaw, 2020) but has been laid bare in particular during the Covid crisis (Bapuji et al., 2020; Munir, 2020). The goal of this panel symposium is therefore to take stock of how the stakeholder VCA approach has been used so far, reflect on considerations and practicalities of applying it to new empirical settings and research questions, and engage in a discussion of how it could be used to help us unpack the complex relationship between organizations and inequality. To this end, we bring together scholars who are experts on the approach with those who are pursuing research that could stand to benefit from it.

Organizing for Value Creation and Managing Risk: Study of Indian Pharmaceutical Ecosystem

Researchers and managers are increasingly looking at ecosystems as the locus of value creation for firms. But even with full information and rational expectations, inherent randomness and probabilistic nature of the value creation process create complexities for the firm. Firms maximize their value while minimizing the risk due to chance events. But how firms manage this risk? Why firms prefer a relationship with one firm and not another? We answer these questions by presenting a formal model of the firm's complementary interactions. Drawing from the possibilities of ideas and technologies available to firms to manage complementarities and avoiding extreme events, firms maximize their output by establishing and managing a complementary relationship. We empirically test the findings of the model in the context of the Indian pharmaceutical ecosystem. We find that firms minimize their risk by establishing relationships with multiple firms. The interactions with firms with high resource asymmetry and competitive relationships give rise to the highest complementarity. Our findings contribute to the literature on ecosystems and randomness and guide managers to create value in an increasingly interconnected industry ecosystem.

External sources of finance and value creation of Chinese mergers and acquisitions: does ownership type matter?

Purpose This paper aims to investigate the effects of external sources of finance and ownership type on the value creation of Chinese acquiring firms. Design/methodology/approach The data set consists of domestic-listed mainland Chinese firms engaged in domestic mergers and acquisitions during the period 2004–2012. Standard event study methodology and cross-sectional regression analysis are used to examine the relationship between external finance, ownership type and value creation of the acquiring firms. Findings This paper finds that whereas bank financing is positively related to the firm value of privately-owned enterprises (POEs), bank financing has a negative but insignificant influence on the firm value of state-owned enterprises (SOEs). Moreover, equity financing has a negative and significant effect on the value creation of SOE acquirers, however, this appears not to be the case of POEs. Research limitations/implications The results suggest that the capital markets in China take into consideration the discriminatory and cheap access to bank loans available to SOEs as negative signals to stock markets, which cause capital markets to punish SOEs through price depreciation. Conversely, capital markets reward POEs in respect of Chinese banks’ discrimination against POEs in bank financing. Practical implications The results suggest that the capital markets in China take into account the discriminatory and cheap access to bank loans available to SOEs as negative signals to stock markets, which cause capital markets to punish SOEs through price depreciation. Conversely, capital markets reward POEs in respect of Chinese banks’ discrimination against POEs in bank financing. Originality/value The results of this study show that external sources of finance and ownership type influence acquiring firm value in an environment where the corporate governance system is weak and the banking sector is dominated by state banks. Further reforms in the financial sector, particularly, in the corporate governance system appear warranted.

Linkage between performance and sustainability initiatives in banking sector–An empirical examination

PurposeThis research study examines the impact of social and governance initiatives on financial performance of global banks. The study is significant in the context of massive changes in regulations, government policy, social attitudes and market development attributed to banking sector.Design/methodology/approachThe source of data for this study was ESG database of Thomson Reuters. The study was based on 472 global banks. The research paper uses two-stage least square model and the study covered the five-year period 2015–2019.FindingsBanks with high intensity of social and governance-related activities have positive market-based valuation effects. Adequately capitalized banks tend to invest more in social initiatives. Banks' governance initiatives directed toward the use of anti-takeover defensive mechanisms are skeptically perceived by markets. Riskier banks tend to have less investments in social initiatives.Research limitations/implicationsThe findings are relevant in the context of expectations from policymakers, consumers and investors with respect to the role which banks ought to play in funding the development of a sustainable economy. The research finding that strong governance and social initiatives by banks are value-enhancing measures is a clear evidence of the significance of ESG initiatives as value-creating mechanisms as perceived by markets.Originality/valueThis study addresses the gap in the research, which examines the role of governance and social initiatives on value creation in the banking sector firms. The study examines the impact of different elements of governance and social initiatives on financial performance of banks.

Entrepreneurship in rural hospitality and tourism. A systematic literature review of past achievements and future promises

PurposeEntrepreneurship in the rural hospitality and tourism sector (RHT) has received wide attention in the past decade. However, a systematic review on this topic is currently lacking. This study aims to track the progress of the RHT and entrepreneurship literature by examining the various thematic research areas, identifying the research gaps and forecasting avenues of future research on the topic.Design/methodology/approachThis paper catalogs and synthesizes the body of literature from the year 2000–2020 using a systematic literature review methodology. After discussing a brief history of RHT and entrepreneurship, the current study presents a review of 101 research articles.FindingsThe review highlights that RHT and entrepreneurship have received relatively limited attention from entrepreneurship journals. The content analysis revealed different gaps and limitations in the understanding of entrepreneurship in RHT, including a predominance of qualitative studies with limited theoretically-grounded and generalizable empirical studies. Furthermore, a high concentration of studies is from European countries. Six main thematic research areas were identified, namely, barriers and enablers, the roles of an entrepreneur, women in RHT, influencers of firm performance, innovation and value creation and methodological commonalities. The review also advances an RHT entrepreneurship ecosystem framework to summarize the findings.Originality/valueSix promising research avenues are outlined based on the six themes identified. The suggested research questions draw from allied literature on small and medium businesses, innovation, women entrepreneurship and institutions to encourage the interdisciplinary cross-pollination of ideas. The findings are summarized in a novel research framework.

Firm Level Strategy and Value Creation in Small Businesses: The Nigerian Experience

The issue of firm specific strategies and how they affect organizational performance has engendered a lot of discussions in the extant literature. This creates a need to investigate the extent to which firm level strategy influences value creation in small businesses. Premised on the elements of corporate, business and functional level strategies, this study examines the influence of firm strategy on value creation in a developing economy ie. Nigeria. Employing a survey research design, 689 small business owners and managers were surveyed utilizing questionnaire research instruments. Using PLS-SEM, the study reveals that firm strategy is a driver of value creation in small businesses. The study also shows that corporate level strategy and business level strategy are the most significant drivers of value creation. The results of this study highlight critical concerns and guide small businesses through the value creation process to achieve competitiveness. Small firms should be active in the formulation and implementation of strategies that are based on value creation. More attention should be given to business level strategy, as this is the most significant driver of value creation.

The Moderating Effect of Family Business Ownership on the Relationship between Short-Selling Mechanism and Firm Value for Listed Companies in China

This study demonstrates an investigation of the external corporate governance effect of short selling mechanisms on firm value in the Chinese context. The effect of family businesses is also examined as a moderator of the relationship between short-selling and firm value. Using panel data analysis of Chinese listed companies, this paper tests a total sample of 22,468 firm-year observations from the Shanghai and Shenzhen Stock Exchange from 2009 to 2019 by applying the PSM-DID method in order to mitigate self-selection and endogenous problems caused by the uniqueness of Chinese short selling mechanisms. The findings suggest that both deregulation and the propensity of short selling can improve the firm value. Our findings also established that family ownership weakens firm value with the availability of short-selling, which indicates that family businesses have long orientations and conduct better corporate governance practices than non-family business, as short-selling shows a weaker external governance effect on firm value creation by family businesses in China. A robust test of alternative measurements is conducted and validated. This study provides significant insights for policymakers to consider in order to further relax short-selling constraints, which can act as effective external governance for better firm value creation, especially for non-family businesses in developing countries.

The moderating effect of IR framework adoption on the relationship between environmental, social, and governance (ESG) disclosure and a firm's competitive advantage

Integrated reporting (IR) is a corporate reporting framework that integrates resources or capital as input, business models as a process, and outcomes into a value creation process for all stakeholders. There is skepticism regarding whether the IR framework can have real consequences; therefore, firms have been very slow in voluntarily adopting it. This study examines whether IR framework adoption can affect the association between environmental, social, and governance (ESG) disclosure and a firm’s competitive advantage. Using multivariate regression on a population of 187 international firms that voluntarily adopted an IR framework from 2009 to 2019, this study found that ESG disclosure has a positive influence on competitive advantage at the firm level. This study also found evidence that the adoption of an IR framework strengthens the association between ESG disclosure and a firm's competitive advantage. Different from the majority of the prior literature, this study uses cognitive cost theory to hypothesize that the IR format could help stakeholders understand the connection between sustainability practices and firm value creation activities. Users understand that the sustainability agenda are systematically embedded in the business model, thus increasing their support for it, which can improve firms’ competitive advantage. Practically, managers should take advantage of the IR framework in reporting ESG practices and aligning those practices with value creation activities.

A Conceptual Characterization of Value Creation in Hospitality and Tourism Firms from a Complexity Perspective

Hospitality and tourism firms are suffering more than others the devastating effects of the COVID-19 pandemic. Its recovery will require designing and implementing innovative value creation strategies that are hard to imagine with the simplifying cause-and-effect analytical frameworks so widespread today. Building on the narrative of the firm as a open complex adaptive system and the literature reviewed in economics and management, this article approaches value creation from the paradigm of complexity science and provides a conceptual bases that would allow value practitioners incorporate more realistic and holistic elements to its analysis. Several implications are outlined that could result from the adoption of this perspective and that might encourage a change in the mindset of scholars and firms’ managers. Guidelines for deeper exploration of value creation from complexity are also provided that could open new avenues for theoretical and methodological advance.

Would turkeys vote for Christmas? New entrant strategies and coopetitive tensions in the emerging demand response industry

To enter a market and scale up, entrant firms often need to cooperate with their incumbent competitors, so they are in coopetition with them. Our goal is to increase the understanding of the antecedents of coopetition and the ways in which new entrant firms navigate coopetitive tensions with incumbents. Moreover, we are interested in the impacts that coopetition has on the value creation and value appropriation of new entrant firms. So far, most literature on cooperation and coopetition in energy markets has provided the perspective of the incumbents. To study the issues empirically, we interviewed 15 demand response (DR) entrants. These firms operate in Finnish energy markets, providing automated DR services, in which Finland is a forerunner country. According to our results, collaboration between new entrant DR firms and energy incumbents was needed in order to establish the new markets. In addition, cooperation with incumbents was beneficial to DR entrants since they were able to gain new customers and increase the efficiency of their resource use due to, for example, common technological development activities. We found that the structure of energy markets was an important factor in shaping the market entry of DR entrants. According to our results, new entrants can enter electricity markets without much cooperation with the incumbents, but cooperation is necessary in natural monopoly district heating markets. As new EU regulations will enhance automated DR services, the results of this study have relevance in other EU Member States where automated DR markets have not yet been established.

Artificial intelligence in retail: applications and value creation logics

PurposeThis paper seeks to answer three questions about how retailers can benefit from AI. (1) What are the main strategies for retailers to improve their AI-related data management? (2) How do retailers use AI to provide solutions in business processes? (3) What are the value creation logics of AI applications in retail?Design/methodology/approachData- and solution-centric perspectives, as well as the concept of value creation logics, serve to build the analytical framework. The grounded theory multiple-case analysis of 54 representative retailers' adoptions and implementations of AI between 2008 and 2018 help to investigate the firm's AI applications and value creation logics.FindingsThis study identifies five main strategies for AI-related data management and reveals 28 AI-powered solutions, changing 14 business processes, with five management areas involved in AI applications to create value via four logics: automation, hyper-personalization, complementarity and innovation.Research limitations/implicationsThis paper advances the research into AI applications in business and management by providing research propositions with an integrative framework to understand how firms can use and benefit from AI. However, secondary data and exploratory study still limit the findings.Practical implicationsThe findings provide retail managers with an analytical framework that can help them to develop a rationale for their strategic choices and best practices relating to the adoption and implementation of AI.Originality/valueThe originality of this paper lies in its systematic examination of AI applications and value creations in retail. The findings provide managers with guidance, rational strategic choices and best practices to take action to embrace the great business opportunities created by AI technologies.

A study of value-relevance and reliability of intangible assets: What do we know from the restaurant industry?

Despite the importance of intangible assets in firm valuation, the value-relevance and reliability of intangibles remain unclear. Specifically, intangible assets are critically important to restaurant firms because of the intangible nature of their core services. Thus, this study examined the value-relevance and reliability of intangible assets in the restaurant industry. The results of this study confirmed that goodwill and identifiable intangible assets had significant value-relevance and reliability in association with firm value creation. The results also suggested that intangible assets are significantly related to restaurant firm value, implying that restaurant investors can rely on the intangible information on balance sheets when considering future investments. However, this study found that franchising has a positive moderating effect on the relationship between goodwill and market-based/accounting-based firm value measures, but it does not moderate the relationship between identifiable intangibles and restaurant firm value. This means that the value created by franchising is not fully reflected in the valuation of goodwill, while identifiable intangibles are fairly well valued or at least are not closely related to the value created by franchising. Consequently, the value relevance and reliability of non-franchise restaurants were confirmed. In contrast, although the value reliability of franchise restaurants was confirmed, the value relevance of franchise restaurants was not fully supported.

Policy Uncertainty and Innovation: Evidence from Initial Public Offering Interventions in China

Public equity is an important source of risk capital, especially in China. The Chinese government has occasionally suspended IPOs, exposing firms already approved to IPO to indeterminate listing delays. The temporary bar on going public increases uncertainty about access to public markets for affected firms. We show that suspension-induced delay reduces corporate innovation activity both during the delay and for years after listing. Negative effects on tangible investment and positive effects on leverage are temporary, consistent with financial constraints during the suspensions being resolved after listing. Our results suggest that predictable, well-functioning IPO markets are important for firm value creation. They demonstrate that corporate innovation is cumulative and is negatively affected by policy uncertainty. This paper was accepted by Gustavo Manso, finance.

The value of marketing innovation: Market-driven versus market-driving

In recent years, significant managerial attention has been paid to marketing innovation; however, the academic literature has remained silent on the value of marketing innovation and often assumes that it is too trivial and tactical to create a substantial impact on firm value. This study attempts to address the research gaps by answering two research questions: (1) Does marketing innovation increase firm value? and (2) if yes, how does marketing innovation add value to firms? Building upon market orientation theory and the marketing-finance interface literature, we classify two types of marketing innovation—market-driven and market-driving—and assess their impact on firm value through the mediating effects of cash flow drivers and investigate how such an impact is influenced by the three market forces—demand uncertainty, technological turbulence, and competitive intensity. With a large panel dataset consisting of 4772 new products in the consumer-packaged-goods (CPG) industries from 1985 to 2010, our study reveals that market-driving marketing innovation, which is associated with the effectiveness of firm value creation, contributes six-fold more to firm value than market-driven marketing innovation, which is associated with the efficiency of firm value creation. This study also reveals the differential moderating effects of the three market forces: when an industry faces high demand uncertainty, both types of marketing innovation strengthen their positive impact on firm value; in an industry marked by technological turbulence, only market-driving marketing innovation increases firm value; but, in an intensely competitive industry, only market-driven marketing innovation increases firm value.

Tracking innovation diffusion: AI analysis of large-scale patent data towards an agenda for further research

Recent advances in AI algorithms and computational power have led to opportunities for new methods and tools. Particularly when it comes to detecting the current status of inter-industry technologies, the new tools can be of great assistance. This is important because the research focus has been on how firms generate value through managing their business models. However, further attention needs to be given to the external technological opportunities that also contribute to value creation in firms. We applied unsupervised machine learning techniques, particularly DBSCAN, in an attempt to generate a macro-level technological map. Our results show that AI and machine learning tools can indeed be used for these purposes, and DBSCAN is a potential algorithm. Further research is needed to improve the maps and to use the generated data to study related phenomena including entrepreneurship.

The effects of corporate venture capital on value creation and innovation of European public owned firms

The practice of corporate venture capital (CVC) has been widely adopted by corporations that invest in highly disruptive start-ups with the aim of fueling innovation and gain strategic advantages. Even if a wide consensus exists on the strategic benefits and performance of CVC investors in the North American venture capital industry, scarce information is available on the European CVC ecosystem. Therefore, the scope of this research is to investigate whether CVC activity, measured as the number of investments, deal size, and the number of realized exits is beneficial for value creation and innovation for European listed companies. Using a panel of CVC investors linked to European listed firms, it is found evidence that CVC activity creates firm value in the period under consideration (2008–2019), confirming North American’s past evidence. Surprisingly, exits convey a negative effect on firm value, suggesting that CVC performance may not be satisfactory enough. Moreover, when considering innovation, evidence is presented that investing in rounds with a higher deal size positively affects investor’s patenting levels, indicating that the later the start-up’s stage in its life cycle, the higher the possibility for the CVC investor to effectively absorb its technology. The relationship is true also for lagged CVC activity, confirming deferred effects on innovation demonstrated on US companies. The findings shed light on the European CVC ecosystem and give room for additional research on CVC investors’ exit performance and co-investors’ benefits on patenting levels

Value creation during fourth industrial revolution: Use of intellectual capital by most innovative companies of the world

This study investigates the impact that intellectual capital (IC) and value creation have on a firm's performance, in relation to the leading innovative firms in the world, at the start of the Fourth Industrial Revolution. An analysis is based on the top 100 innovative companies from different countries and sectors, as indexed by Forbes in 2016, for the period between 2011 and 2015, by using the pooled OLS regression model. The Fourth Industrial Revolution characterizes the fusion of technologies, and is blurring the boundaries between physical, digital, and biological spheres. The study reveals that capital employed efficiency and human capital efficiency have a significant positive impact on a firm's performance, whereas, the relational capital efficiency and structural capital efficiency are not related to it. Findings also suggest that relational capital efficiency is positively related to the value creation of innovative firms, while all the other mechanisms of intellectual capital and Modified Value-Added IC (MVAIC), are not associated with the value creation of innovative companies. The study advocates that innovation policies are critical, and require a rigorous review from the top management in order to meet the challenges of the Fourth Industrial Revolution, that is heavily innovation-based, and requires overwhelmingly new competencies.

Ownership Pattern and Governance–Performance Relation: Evidence from an Emerging Economy

The article examines whether different corporate governance practices and ownership patterns influence firm performance and value creation in an emerging market context. The study establishes that the governance–performance relation depends highly on the estimation tools applied. While the pooled regression or fixed effects panel model may provide spurious and biased relations, the system generalized method of moments (GMM) model provides superior and valid results by addressing all types of endogeneity problems. The results show that firms with a separate CEO and chairperson outperform firms with CEO duality. Also, higher executive salary leads to improved firm performance. Moreover, higher promoter shareholding leads to greater value creation and improved firm performance, and domestic institutional investors (DII) have a significant impact on firm performance.