The contribution of intangible asts and expenditures to shareholder value
RICHARD A.HEIENS ,ROBERT T.LEACH AND LEANNE C.MCGRATH*
University of South Carolina Aiken,471University Parkway,Aiken,South Carolina 29801,USA
The prent study investigates the role of intangible asts and expenditures in the arch for shareholder value.Recognizing the limitation of traditional financial measures of performance,this study asss the impact of intangible asts and expenditures on a direct measure of corporate shareholder accountability,market-adjusted holding period returns.Utilizing a sample of 1,657actively traded manufacturing firms,the results indicate that advertising,goodwill,and rearch and development do not have significant positive impact on shareholder value,as measured by holding period returns.Instead,only intangible asts other than goodwill,which include the value of patents,copyrights,licens,and trademarks,have a positive impact on shareholder value.
KEYWORDS:Intangible asts;shareholder value;intangible expenditures;resource-bad theory
INTRODUCTION
Traditionally,the focus of strategic marketing has been on the creation of customer value and positive p
roduct-market results.As such,firms with a market orientation were expected to engage in strategic actions intended to either enhance their appeal to customers or perhaps to position themlves relative to competitors (Heiens,2000).Increasingly,however,there has been a growing realization that managers and marketers should also understand the financial implications of strategic marketing decisions and strive for the enhancement of shareholder value (Day and Fahey,1988;Srivastava,Shervani and Fahey,1998).Consistent with this expanded view concerning the purpo of marketing strategy is the understanding that ‘good financial analysis complements rather than contradicts good marketing analysis’(Barwi,Marsh and Wensley,1989,p.85).Conquently,marketing rearchers need to examine and ek to understand the financial impact of strategic decisions not only at the firm level,but for investors alike.
Historically,it has been the tangible investments that are most easily summarized on an accounting statement which have been given top priority and allocated the greatest resources by management (Stein,1989).In fact,managers often sacrifice investments in intangibles in order to inflate current-term results (Stein,1989;Lahart,2004).Nevertheless,rearchers and investors alike now agree that the asts and skills that are the true critical drivers of competitive advantage and shareholder value in our new knowledge-bad economy are largely intangible (Aaker and
JOURNAL OF STRATEGIC MARKETING 15149–159(MAY–JULY
2007)
Journal of Strategic Marketing ISSN 0965–254X print/ISSN 1466–4488online #2007Taylor &Francis uk/journals DOI:10.1080/09652540701319011
150HEIENS,LEACH AND MCGRATH Jacobson,1994;Haanes and Fjeldstad,2000;Gross,2001).In fact,many believe that successful competitiveness in the21st century will demand and be dependent upon the effective management of intangible asts and expenditures(Warren,2000;Zahra,1999).
With the significant increa in competition brought on by globalization and the deregulation of major industries in the past20years,sustainable competitive advantage and superior shareholder returns are increasingly achieved through posssion of intangible resources such as brand equity,new product capability,superior technologies,patents,trademarks,copyrights,and specialized knowledge(Hall,1992;Simon and Sullivan,1993).For example,at Apple Computer, brand value equals a huge80%of market capitalization(Gross,2001).Becau the value of companies has been shifting f
rom tangible asts to intangible asts,investors are increasingly eking to asss the value of intangible asts and whether expens to support them are really productive(ibid.).As such,the prent study investigates the role of intangible asts and expenditures on firm performance,as measured by shareholder returns.
Perhaps the most influential framework for understanding the contribution of intangibles to shareholder value is the resource-bad theory of the firm(Barney,1991).Although widely acclaimed in the management literature,Srivastava,Fahey,and Christenn(2001)argue that marketing scholars have focud remarkably little attention on the resource-bad view as an underlying framework for advancement of marketing theory.Conquently,we begin with a review of resource-bad theory,with an emphasis on the classification of intangible asts and expenditures.We then move on to an empirical investigation of the impact of veral specific intangible asts and expenditures on an important financial measure of shareholder value, investors’holding period returns.We conclude with a discussion of our findings,managerial implications,and suggestions for future rearch.
RESOURCE-BASED THEORY OF THE FIRM AND INTANGIBLE ASSETS AND EXPENDITURES
A resource can be envisioned as any factor that generates value for a company and is,to some extent,under the control of the company’s management(Bontis et al.,1999).Conquently,in analyzing why a company succeeds or fails,resource-bad theory applies an‘inside-out’or company specific perspective(Srivastava et al.,2001).Specifically,the theory suggests that resources that are valuable,rare,inimitable,and non-substitutable make it possible for firms to develop and maintain competitive advantages(Barney,1991).In turn,the resources and resulting competitive advantages are expected to lead to superior performance.As such, heterogeneous firm-specific resources and capabilities are the foundation for the resource-bad view of the firm.The successful firm is expected to take stock of their corporate resources and to lect strategy bad on both their identified resource capabilities and their dynamic fit with opportunities in the environment(Mahoney,1995).
The resources and capabilities of a firm can be regarded as bundles that consist of,or are driven by,tangible and intangible asts and expenditures(Barney,Wright and Ketchen,2001).Tangible resources may be thought of as‘everything that remains in the company after5o’clock’(Bontis et al.,1999).Whereas tangible resources may include such items as the physical technology utilized by the firm,the firm’s actual plant facilities and equipment,and even its geographic location(Barney,1991)
,intangible resources are often more difficult to quantify.This is becau intangible resources are largely comprid of items not appearing on the balance sheet(Carmeli, 2001).The‘soft’resources center around knowledge and information issues;and so,in many instances,intangible resources cannot be evaluated by conventional methods due to the好好学习天天向上英语
INTANGIBLE ASSETS AND EXPENDITURES151 non-existence of a market price.When the cost or value of the resources can be clearly identified,however,they may be included in the balance sheet along with the firm’s other asts. One of the first attempts to identify both the sources of sustainable competitive advantage and the relative contribution that the different intangible resources add to business success was the taxonomy of intangible resources developed by Hall(1993).Ferna´ndez,Montez and Va´zquez(2000)have suggested the most recent typology.Expanding on the work begun by Hall(1993),Ferna´ndez et al. (2000)group intangible resources into two general categories bad on whether they are people dependent or independent.The best example of a people dependent intangible resource is human capital.By human capital,Ferna´ndez et al.(2000)refer to the knowledge acquired by a person that increas his productivity,including personal contacts and relations,experience,and judgment.On the other hand,people independent intangible resources can be assigned into three basic categories: organizational capital,technological capital,and relational capital.
A firm’s organizational capital includes its administrative procedures and routines,databas with information that results in competitive advantage,corporate culture that includes norms and behavior,and its strategic alliances(Ferna´ndez et al.,2000).Capital technology includes knowledge related to the access,u and innovation of product and production process techniques.A firm’s R&D further widens and helps perfect technological capital as do its acquired licens that allow the adoption and assimilation of another firm’s technology(ibid.).Part of this knowledge may be articulated and codified by formulae,blueprints,or engineering specifications (ibid.).As previously stated,when the cost or value of intangible resources can be clearly identified,they may be included in the balance sheet along with the firm’s other asts.Becau R&D expenditures are typically included in most company balance sheets,it is possible to empirically analyze the impact of this form of intangible investment.Likewi,intangible organizational capital may also be included in company balance sheets under the general category of‘Intangibles’.
Finally,relational capital includes the potential derived from marketplace factors such as reputation,brand name,customer loyalty,and establishment of distribution channels(ibid.).One way to build relational capital is through a firm’s advertising expenditures.This is becau spending on advertising results in the social legitimization of the firm and signals superior quality (ibid.).In turn,cus
tomers tend to be drawn toward quality outputs and form loyalties toward the providers of tho outputs(Kroll,Wright and Heiens,1999).Conquently,expenditures on advertising may be ud as a proxy for the prence of relational capital.As in the ca of R&D, investments in advertising may be quantified and included in company income statements, facilitating analysis.
RESEARCH HYPOTHESES&MEASUREMENT
Consistent with the resource-bad view,it is our expectation that intangible resources,driven by investments in R&D,advertising,and other intangibles,are likely to contribute to a firm’s competitive advantage and to superior financial returns for investors.According to Bontis et al. (1999),given the increasing pressures today for corporate accountability,rearchers need to utilize appropriate metrics in asssing both a firm’s resources and the performance of the firm. Unfortunately,financial measures such as Return on Asts(ROA)and Return on Equity(ROE) that have traditionally been ud to asss performance have long been criticized as inadequate in guiding strategic planning decisions,especially when tho decisions are measured against the overarching principle that us maximization of shareholder value as the true measure of a firm’s performance(ibid.).Recognizing the limitation of traditional financial measures of performance,
hama152HEIENS,LEACH AND MCGRATH this study asss the impact of intangible asts and expenditures on a more direct measure of corporate shareholder accountability,market-adjusted holding period returns(Mikkelson and Ruback,1985).
We tested four specific hypothes related to the impact of intangibles on shareholder value. Our hypothes,stated in terms of the null,are as follows:
H1:The ratio of advertising expenditures to sales does not have a positive impact on shareholder value.
H2:The ratio of goodwill to total asts does not have a positive impact on shareholder value.
H3:The ratio of intangible asts other than goodwill to total asts does not have a positive impact on shareholder value.
H4:The ratio of rearch and development expenditures to sales does not have a positive impact on shareholder value.
2020高考语文全国卷一In our best effort to create a data driven empirical test of the hypothes,intangible asts and expenditures are measured in the current study through available financial data.Accounting data for t
he study were obtained from Standard&Poors’Compustat Industrial Annual databa that contains income statement,balance sheet,cash flow statement,and supplemental data items for over24,000publicly traded companies.
As detailed in our hypothes,lected expenditure and ast variables presumed to have long-term benefits to manufacturing firms and which are available in the Compustat databa include advertising,rearch and development,goodwill,and intangible asts other than goodwill (patents,trademarks,copyrights,licens,etc.).Considering the cumulative effect of intangible asts and expenditures,especially advertising and R&D expenditures,it was our expectation that the presumed benefits of the investments would not be expected to be realized until some future point in time.Conquently,data were collected beginning with the year prior to an investment being made by each firm.This entailed collecting six years of fiscal year-end accounting data beginning with the year1996and ending with the year2001.In order to control for firm size,the following ratios were then constructed using the average value of each individual variable taken over the period1996to2001:
1.Advertising to sales(ADVER):Advertising expenditures(Compustat data item#45)
reprent the cost of advertising in radio,television,newspapers,periodicals,and other electronic media.
2.Goodwill to total asts(GW):Goodwill(Compustat data item#204)reprents the
nida
excess cost over equity of an acquired company,including excess cost over net asts of acquired business,excess of purcha price over fair market value of asts acquired, goodwill(net of accumulated amortization)and purchad goodwill.
3.Intangible asts other than goodwill to total asts(OTHER):Intangible asts
(Compustat data item#33)other than goodwill include the net value of intangibles such as blueprints,patents,copyrights,design costs,distribution rights and agreements, licens,and trademarks.
4.Rearch and development to sales(R&D):Rearch and development(Compustat data
obvious什么意思item#46)reprents all costs that relate to the development of new products or rvices, software development expens and related amortization.
As our measure of shareholder value,market adjusted holding period returns were computed over the event window1997to2002,assuming an initial value of P i,t2T21dollars invested in the stock t2T21days before the holding period window.Utilizing a sample of manufacturing firms,a market-adju
sted holding period return,HPR i,t was computed by subtracting the compounded market holding period return from the compounded stock holding period return,which is defined as:
dof>wh
HPR i,t~R i,t{T{1P t
t~t{T
moderate
1z R i,t
ðÞ{P i,t{T{1P t t~t{T1z R m,t
ðÞ
where R i,t is stock i return on day t of the holding period window,and R m,t,is the market return on day t of the holding period window.1Simply put,if an investment is made in a portfolio comprid of companies that mimic the compounded return on all companies that compri the stock market over an investment horizon T,and that same investment is made in a lected individual company for the identical investment horizon,the market adjusted holding period return shows how much excess return the investor would have achieved over the market return. Daily stock returns data were obtained from the University of Chicago’s Center for Rearch in Security Prices(CRSP)databa.Fo爱探险的朵拉第四季
corresponding
r firms with missing daily returns,a geometric average return was computed over the contiguous period for which price data was available,and the resulting average was ud to estimate the missing return.
SAMPLE SELECTION
In order to test our hypothes,we began with an initial sample of3,471actively traded manufacturing firms that had SIC codes ranging from2000to3999inclusive and were contained in the2001Compustat databa.The industry classification codes include a broad cross-ction of manufacturing firms.2A program was specifically designed in SAS to extract financial data from the CRSP and Compustat databas.By eliminating all firms for which no total asts and/or sales existed in the year1997(the start of the five-year holding period),we were left with2,702firms. We then eliminated all firms who fiscal year-end changed over the five-year period and were left with2,516firms.
We further eliminated all firms that did not have complete/valid annual sales data over the six-year horizon or that did not have sales data in1996(lag year).Conquently,we were left with 2,239firms.Becau12of the2,239firms had zero sales during1996,they were eliminated as well.Furt
hermore,we eliminated all firms not contained in the CRSP databa and were left with2,134firms.Finally,we eliminated all firms not traded over the entire period of1997to 2002.Conquently,of the original3,471actively traded manufacturing firms that we began with,1,657firms remained to form the final sample.
RESULTS&DISCUSSION
Table1provides descriptive statistics pertaining to yearly cumulative holding period returns derived over the time period1997to2002.For each time period,P i,t2T21dollars are invested in the stock at the beginning of the one year holding period window.By averaging the five one-year holding period returns,the average value is23.8%,while the average median value is224.6%, indicating the market performed relatively better than did firms comprising our sample as a whole.One should take notice,however,that the standard deviation of holding period returns INTANGIBLE ASSETS AND EXPENDITURES153
