Intangible Investment Research Articles

The role of cluster ecosystems and intellectual capital in achieving high-growth entrepreneurship: evidence from Germany

PurposeThis paper examines the role played by business cluster ecosystems and intellectual capital (IC) in achieving high-growth firm (HGF) status.Design/methodology/approachWe draw our insights from the knowledge-based perspective and economic geography as a theoretical lens, which combined offer a more unifying understanding of how business cluster ecosystems and IC foster high growth entrepreneurship.FindingsDrawing on a sample of 11,360 German incorporated firms across 80 clusters, we find that cluster ecosystems play a significant role in supporting firms to become HGFs. More specifically, being located in business clusters increases the likelihood of becoming HGFs by 2.2% to 4.49%. We also find that clusters with more productive firms in the ecosystems provide favorable conditions for member firms to achieve HGF status, while the impact of other cluster-specific conditions (high-tech cluster membership and multinational enterprise share in clusters) is less clear. Additional insights suggest that firm IC (investments in intangible assets) enables firms to achieve high growth status.Research limitations/implicationsThe findings of this paper hold theoretical and managerial relevance and shed more light on the impact of cluster-specific factors in the ecosystems and firm IC in achieving high growth entrepreneurship.Originality/valueThis paper is among the first of its kind to bring together three distinct literatures (HGFs, business clusters and IC) and utilize insights from each to derive a conceptual framework that links them in explaining high-growth entrepreneurship.

A macroeconomic perspective on taxing multinational enterprises

We develop a general-equilibrium model to study the macroeconomic consequences of international profit shifting by multinational enterprises (MNEs). In our model, MNEs shift profits by exploiting intangible capital transfer pricing rules, which makes intangible investment more attractive and leads to higher output at home and abroad. We use the model to quantify the effects of two reforms proposed by the OECD: (i) reallocating MNEs’ profit tax bases to the countries where they sell their products; and (ii) a minimum global corporate income tax. Both reforms would reduce profit shifting substantially, but (i) would reduce global output whereas (ii) would have little macroeconomic impact. The reforms’ distributional implications would also be important. In high-tax countries, tax revenues would increase more than output declines, raising gross national income and enabling redistribution that could offset lower wages. In contrast, output and tax revenues would both drop in low-tax countries, significantly reducing national income.

Accounting for Intangible Assets, a Study

Intangible investments have happened now seminal supply chain for multifold fraternities and economic locales. However, these investments are rarely recognized as assets by accounting standards. In such scenario, pragmatic goodness of an enterprise cannot be reflected in reported financials despite accounting is to equip effective details for its users. In cutting-edge economy, substantiveness of intangible assets initiates considerations towards its reception in accounts. Intangible assets are perceptible non-monetary non-physical potentiality of value bred by novelty, unparalleled organizational setup or experience capital review. In the era of knowledge economy, intangible assets like tangible assets are worthwhile as collateral for loans also. This paper bottomed on secondary data contemplates several perspectives of intangible assets like importance, accounting treatment beside dimensions concerning measurement, problems and suggestions inherent in its accounting, etc. Accounting relevance of intangible assets and its’ management are identified as major issues. The study extrapolates that disclosure can be reckoned as unfolding to the blowbacks of nowheresville of intangibles in financial statements.

Investment in intangible assets and economic complexity

We study the nexus between a country's economic complexity and its investment level in intangible assets. Our data spans 27 countries, all sector classifications and 8 intangible categories, which allows us to consider over 188 indicators per country. Our approach offers a complementary more policy-oriented perspective, for economic complexity, compared to relatedness. Results underscore the significance of high knowledge intensity intangibles, such as research and development, in explaining economic complexity. Policy recommendations advocate for prioritizing R&D in manufacturing, alongside fostering complementary activities like employee training, design, and branding in the same sector. In the first part of our results, we introduce an intangible-complexity score for policymakers, enabling the assessment of a country's relative performance in ensuring complexity through investments in various forms of intangible capital, on a country basis. Our second set of estimates, which control for a vast set of potential confounders (almost 800), offer a precise measure of the average impact of intangible investments on complexity, and allow us to argue for the empirical superiority of recent advances in causal machine learning when modeling complexity.

Sovereign risk and intangible investment

This paper measures the output and TFP losses from sovereign risk, considering firm-level intangible investment. Using Italian firm-level data, we show that firms reallocated from intangible assets to tangible assets during the 2011–2012 Italian sovereign debt crisis. This asset reallocation is more pronounced among small firms and high-leverage firms. This reallocation affects aggregate output and TFP. To explain the reallocation pattern and quantify the output and TFP losses, we build a sovereign default model incorporating firm intangible investment. In our model, sovereign risk deteriorates bank balance sheets, disrupting banks’ ability to finance firms. Firms with greater external financing needs are more exposed to sovereign risk. Facing tightening financial constraints, firms shift their resources towards tangibles because they can be used as collateral. We find that elevated sovereign risk explains 45% of the observed output losses and 31% of the TFP losses in Italy from 2011 to 2016.

Enterprise information and communications technology software pricing and developer productivity measurement

AbstractThe 1999 addition of business sector software and services spending to the National Income and Product Accounts was an important innovation, achieving a novel focus on the measurement of intangible asset investment. Over the intervening years, enterprise information and communication technology (ICT) has fundamentally changed. The transformation has raised questions about the extent of the decline of ICT function software prices. As a software producing sector, the business sector ICT function now has a much wider array of production factor choices. In addition, labor and multifactor software development productivity, an important sources of value creation, varies widely from year to year. With the use of a two‐sector model and a standard growth accounting framework, a business sector ICT function shadow price is estimated, finding that software price declines have been underestimated by 4.4 percentage points (ppt) over 2015 to 2021. The impact on GDP growth is a 0.1 ppt underestimate. Correcting the underestimate increases software spending from 19.6% to 24.7% of nonresidential fixed investment, and from 47.4% to 59.9% of real intellectual property product spending.

The Islamic Financing on Macroeconomic Stability in Indonesia

The objective of this study is to examine the function of Islamic finance in fostering macroeconomic stability in Indonesia. Specifically, it will scrutinize the stability of Islamic banks, its effects on micro, small, and medium enterprises (MSMEs), and its impact on economic growth and inflation. Employing a qualitative research approach, data were gathered by means of document analysis, encompassing books, scholarly publications, and institutional reports. The results demonstrate that Islamic banks, which employ profit-sharing and asset-backed financing structures, have higher levels of stability in comparison to conventional banks, therefore mitigating the likelihood of financial catastrophes. Islamic finance has profoundly facilitated the expansion of MSMEs by offering cost-effective, interest-free lending, therefore augmenting their productivity and economic contributions. Furthermore, Islamic finance promotes consistent economic expansion by prioritizing investments in tangible assets in industry areas such as agriculture and manufacturing. Although it suppresses speculative activity, its effect on inflation is inconclusive, as further growth of micro, small, and medium enterprises (MSMEs) may have upward influence on pricing. In conclusion, the study highlights that Islamic finance contributes to Indonesia's macroeconomic stability by strengthening Islamic banks, promoting MSME development, and fostering balanced economic growth. The data shows a consistent rise in the contribution of MSMEs to Indonesia's GDP from 57.08% in 2017 to 61.90% in 2022, underscoring their increasing significance in the national economy. This upward trend highlights the growing role of MSMEs in economic development.

Corporate social responsibility and external disruptions

We propose that corporate social responsibility (CSR) investment serves as an intangible investment in stakeholder relationships to guard against external disruptions to firms' operations and tangible assets. Using a difference-in-differences setting and a database of factory locations, we show that manufacturing firms with higher CSR ratings are much less affected by major natural disasters in terms of operating performance. We then propose two mechanisms through which CSR engagement shields manufacturing firms against external disruptions: employee motivation and customer loyalty. Empirical evidence suggests that CSR helps manufacturing firms survive major natural disasters by motivating employees, which leads to higher post-disaster productivity, and keeping customers, which leads to more stable post-disaster sales.

Property rights protection and intangible investment in the Sub-Saharan African non-financial firms

This empirical study examines the impact of property rights on intangible investments in sub-Saharan African (SSA) non-financial firms using firm-level data. The study employs a local projections methodology for twelve SSA countries over the period 1996–2020. Our empirical results show that property rights protection increases intangible investment in non-financial firms in the SSA region. This effect is significant for the SSA region in the long run.

Intangible Capital as a Driver of Labor Productivity in Regions and Industries: Evidence of the Spanish Case

ABSTRACTIn the last decade, many studies discussed the impact of intangible investment on firms' performance. However, comparing the effect of different types of intangible investments at regional and sectoral level is not well explored. The paper aims to fill this gap by assessing the impact of several intangible capital on labor productivity using for the first‐time updated data for the period 2000–2019. Adopting panel data techniques and system GMM, the results show that regions with higher endowments of intangible capital get higher levels of labor productivity. The study results also highlight the importance of differentiating between different sectors and types of intangible capital as they have different impact on productivity labor. In the primary sector only investments in R&D result in additional productivity gains. In the manufacturing industry, investments in R&D and software result in additional productivity gains while the service sector also increases labor productivity through other intangibles assets with innovative property such as mineral exploration, entertainment, and artistic originals.

Intangible capital as a production factor. Firm-level evidence from Austrian microdata

ABSTRACT We examine the role of intangible capital as a production factor using Austrian firm-level register data. The setting exemplifies the characteristics of an advanced, small, and open economy. Descriptive statistics show that intangible investment has increased over time. The intensive and extensive margins of firms’ investments are highly skewed. They differ across sectors. A series of sample splits show that the components of intangible capital play different roles as inputs in the production function. Software and especially licences are important for SMEs and exporters. Research and development play an important role in production in all specifications. For firms that continuously invest in intangible capital, all components of intangible capital gain importance in the production functions. These results complement those found in previous studies and have implications for the strategic orientation of industrial and innovation policy.

China's declining business dynamism

AbstractWe document five novel facts about the dynamism of Chinese manufacturing firms between 2003 and 2018. We show that: (i) the revenue and capital shares of young firms have declined, (ii) life‐cycle growth of firm revenues and assets has declined, (iii) life‐cycle growth of process efficiency / product quality and investment in intangibles has declined (iv) younger firms have higher capital productivity than older firms, with the gap increasing over time, and (v) the dispersion of capital growth and the responsiveness of capital growth to capital productivity have both declined. Using a simple model, we estimate that the lower life‐cycle productivity growth of young firms reduces manufacturing productivity growth by 0.8 percentage points annually, and worsening allocative efficiency of capital between young and old firms reduced manufacturing total factor productivity by 1.25% between the early 2000s and late 2010s. We find that business dynamism is weaker in provinces where state‐owned enterprises account for a larger share of the capital stock.

INTANGIBLES: HOW FAR WE HAVE COME AND THE ROAD AHEAD

Investment in intangible assets as a share of business sector GDP has increased rapidly across advanced market economies during the past several decades, and this explosion in intangible capital has been matched by a huge increase in related research on how rising intangible intensity has affected economic activity, the structure of the economy, and financial markets. These developments provide the backdrop for this survey essay—a summary of a keynote address delivered at the ESCoE‐IARIW conference on intangible assets held in London in 2021—written from the perspective of someone involved in intangibles research since the early 2000s. The essay selectively reviews work by researchers inside and outside National Statistical Offices (mostly on the measurement side) to highlight how far the measurement community has come since the early 2000s and to offer a perspective on key measurement research questions for the future to highlight the road ahead.

Tangible, intangible assets and labour productivity growth

PurposeThe aim of this study is to investigate the contribution of tangible and intangible investments in driving labour productivity growth in the European Union over the period 2000–2017 and their role in the short and medium run. Additionally, heterogeneity across countries is accounted for by performing estimates separately for Eastern and Western European countries.Design/methodology/approachThe methodology used to conduct the analysis of the determinants of productivity is the two-way fixed-effect and the system generalised method of moments. We also include country-specific dummies in place of our variable on national innovative capacity as a means to further reduce the number of instruments.FindingsThe results reveal a long-term relationship of investment in intangible assets with labour productivity growth, more specifically of investment in R&D. This relationship holds both when considering the whole set of European countries and for Western European countries, demonstrating that R&D is key to enhancing labour productivity growth. On the contrary, the effect for Eastern countries is negative, probably due to the lack of capacity to turn this investment into an efficient and effective way to foster productivity.Originality/valueBesides confirming the well-known role of tangible and intangible assets in productivity, the heterogeneity shown in our analysis highlights the need for improving capabilities in Eastern countries. Diversifying the decisions on the investments in European countries, depending on the specific needs and their heterogeneity, could help bridge the productivity gap and enhance specific capabilities of the country systems.

Spending on Intangibles and The Growth of Public Sector Enterprises In India: A Measure-Specific DEA Analysis

A recent surge of intangible investment to navigatethe productive capability of Central Public Sector Enterprises (CPSEs) resurrected a range of doubt about the trajectory of choices and the actual managerial space that actualizes these choices. Though spending on intangibles and more particularly on R&D contribute substantially to growth parameters but the ambiguous magnitude of spending patterns and treatment of such expenditure from regular business operation to an investment element, in particular, to enhance the valued capability, yet unresolved in the corporate world. Recent studies on the usefulness of intangibleoutlay and capitalization of the same in improving future returns evidenced a gloomy pattern of crisis in the measurement and allocation of intangibles. As evidenced, most of the spending on intangibles by the business units in India is targeted to secure “patent for profit” rather than to achieve “valued capability” to expand real opportunities to choose between alternatives. Based on the last ten years' dataset of Maharatna Enterprises this study critically examines the contribution of decisive one from the container of four inputs namely spending on software, other R&D expenditure, materials, and employee costs on a set of productive activities covering the revenue and net- value- added, as these are more regular in enhancing both profit and production capability with the help of input-oriented VRS weighted measure-specific DEA model. Results show that the multidimensional performances between the enterprises are not uniform throughout the study period and that the efficiency is highly correlated with the size of a few companies like ONGC, BHEL, and GALE and higher spending DMUs on intangibles do not necessarily have higher-ranked performance in terms of returns and net value added. This study provides valuable insights for managers aiming to maximize the benefit of variety in Software and other R&D spending patterns considering the sizes of the companies while minimizing the risk associated with excessive diversity beyond the moderate threshold in intangible investments.

The Impact of Intangible Assets on Capital Structure in Asia

Past studies find evidence that the level of intangible assets is positively related to corporate borrowing in the United States. This paper explores the relationship between intangible assets and capital structure for Asian countries. We identify a positive relationship between intangible asset investment and debt levels throughout Asia. Unlike in the United States, this positive relationship appears to be significant for non-Goodwill and Goodwill intangible assets. Further, we find that the magnitude of this relationship is significantly greater for developed Asian countries than for developing ones. We explore explanations for this difference related to firm size, firm age, cash flow volatility, and a firm’s likelihood to default on its debt.

The Impact of Performance Reporting on Investment Behavior: Evidence from Disclosure Reform in the U.K.

ABSTRACT I examine the real effects of a disclosure mandate that, with the aim of enhancing performance reporting, requires a subset of London Stock Exchange (LSE) firms to describe operational and strategic aspects of value creation, such as business operations and strategies, in their annual reports. Using an instrumented difference-in-differences design, I find that compliance with this initiative, evidenced by more disclosures of performance measures and commentaries relating to business operations and strategies, promotes intangible investments. My analysis of external and internal control systems suggests that enhanced performance reporting promotes investments because it attracts long-term investors and reduces CEO pay sensitivity to earnings performance. JEL Classifications: D22; D82; O30; M41.

Optimizing the use of intangible assets in industry to overcome poverty: a cross-country analysis

The article focuses on the description and utilization of intangible assets (IA), particularly in industry, as a means of alleviating poverty. The authors examine the experiences of European countries, as well as Ukraine and Kyrgyzstan, and evaluates existing approaches to granting access to intangible assets following international law. Given that only 40% of the global population has access to the Internet and participates in the digital economy, addressing inequality in this realm is a pressing global issue recognized by the G20. Economic inequality, defined in economic theory as the gap between the rich and the poor in terms of income, wealth, education, employment, and living standards within and across countries and regions, will be considered in this article as a disparity in economic well-being indicators. Generally, it is noteworthy that intangible assets (hereinafter referred to as the IA) are crucial, enabling enterprises to develop. They serve as primary indicators of technological progress and enterprise development, reflecting its innovative direction. Consequently, the accounting and auditing of IA play a vital role in industrial enterprises in Ukraine. However, insufficient legislative frameworks in post-Soviet countries, notably Kyrgyzstan, hinder the ability of intangible assets to contribute to poverty alleviation. The income distribution in these countries, which is closely linked to the issue of inequality, is viewed in a positivist theoretical framework from a functional perspective, specifically as the allocation of income among the principal factors of production. Changes in poverty levels in post-Soviet countries can also be attributed to investments in intangible assets that benefit households. Possessing social capital in the form of quality education, health, or land can lead to more favorable earning prospects and can function as intangible capital. One notable characteristic of industry in post-Soviet countries is its urban concentration, which can be attributed to the presence of individuals with more valuable intangible assets in urban areas.

Measuring Intangible Capital with Market Prices

Accounting standards prohibit internally created knowledge and organizational capital from being disclosed on firm balance sheets. As a result, balance sheets exhibit downward biases that have become exacerbated by increasing levels of intangible investments. To offset these biases, researchers must estimate the value of these off-balance sheet intangibles by capitalizing prior flows of research and development (R&D) and selling, general, and administrative (SG&A). In doing so, a set of capitalization parameters must be assumed (i.e., the R&D depreciation rate and the fraction of SG&A that represents a long-lived asset). We estimate these parameters using market prices from firm exits and use them to capitalize intangibles for a comprehensive panel of firms from 1978 to 2017. We then use a series of validation tests to examine the performance of our intangible capital stocks versus those developed from commonly used parameters. On average, our estimates of intangible capital are 15% smaller than estimates from status quo parameters while exhibiting larger variation across industry. Intangible capital stocks derived from exit price parameters outperform existing measures when explaining market enterprise values and identifying human capital risk. Adjusting book values with exit-based intangible capital stocks markedly attenuates well-documented biases in market-to-book and return on equity ratios while increasing the precision of the high-minus-low asset pricing factor. We conclude that our capitalization parameters create intangible stocks that perform equal to or better than status quo measures in various applications. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.02058 .

The “F Words”: Why Surveying Businesses About Intangibles is so Hard

Understanding of the value and economic contribution of intangible assets is hampered by measurement challenges, which stem from the characteristics of intangibles and weaknesses in survey design. We characterize these challenges with four “F words”—forgotten, fuzzy, framing, and frequency. We establish these characteristics theoretically, with reference to the survey design literature. We then provide a summary of a range of official business surveys that capture data on intangible assets in the UK. Using these sources, we test the (in)consistency and quality of data on intangibles collected through business surveys in the UK, using a range of data sources and microdata linkage. We draw on this research to propose modifications to surveys on intangible investment that might yield superior data in future.