Research Design
Project “The Changing Role of Companies’
Intangibles over the Crisis”
Elena Shakina
Angel Barajas
12.04.2013
The Aim of the Discussion
To have a common understanding of the key outlines of our
study
To draw a core
specification of the
empirical analysis
To agree on terms and
methodology
To identify the
common framework of
our study
The Framework of our Study
We learn more about the value creation process on turbulent
markets
Considering a positive economic profit as a condition of
value creation
Examining intangibles on key value drivers
Establishing critical impact of exogenous economic shocks
(crises) on companies’ value drivers
Research Framework:
EVA concept
NOPAT
Capital Charge
EVA
Invested
Capital
WACC – alternative costs of
invested capital
EVA
ROIC
WACC
WACC
ROIC
industry
Research Framework:
MVA concept
Market Value
(Equity + Debt)
EVA3
Invested
Capital
EVA2
Market
Value Added
EVA1
n
EVAi
å (1+ WACC)
i=1
i
Research Framework:
Value creation EVA & MVA
Value Creation as a management goal to meet requirements of investors (Steward,
Stern, Copeland, Koller, O’Byrne etc )
Investors are looking for companies with positive (or increasing) EVA and providing a
growth of MVA
Economic profit (or EVA) is an
indicator of companies performance
which shows if a particular company
succeeds covering alternative costs
of its investors
Market value added is an outcome
of investors estimations
(expectations) regarding
companies’ future – investment
attractiveness
Research Framework: Specifying value creation
process
input
• Companies
resources
Investment decisions
made by companies’
managers:
• to invest in resources
which provide
competitive advantages
output
outcome
• EVA
Positive and
increasing EVA
• is a goal of managers
• is a signal for investors to
buy
• MVA
Shows that companies
value drivers were
recognized by investors
1 Exploration of EVA drivers (managers’ view)
2 Exploration of MVA drivers (investors’ view)
“Production function”
Exploration EVA as an indicator of
investment attractiveness
Research Framework: Specifying crisis impact
Value creation process
Inputs (Intangibles)
Outcome: MVA
Output: EVA
(competitive advantages )
(outcome of investment
attractiveness)
Key assumption
by affecting market conditions and
investors’ expectations
Value creation
process and value
drivers are likely to
be changed across
crisis periods
Economic crisis which influences a value
creation process
Research Framework:
Value Drivers of EVA &MVA
EVA is associated with
companies’ intangibles
which provide competitive
advantages
MVA is associated with
companies’ intangibles
which are treated by
investors as growth
enhancers
the quality of human
resources, social capital
top-management
qualification and expertise
Relational Capital
the efficiency of relations
with companies customers,
suppliers, partners, investors
marketing network,
contracts, brands,
reputation
Innovative Capital
innovative activities
intellectual property, new
products
Structural Capital
internal business processes
quality management system
Human Capital
Research Methodology
Hypothetico-deductive
reasoning
basing on theory and
practical experience
the hypotheses are put
forward
Quantitative analysis
Quasi-naturalistic observations
Information is taken from companies annual reports, financial
markets, rankings, information bureau, websites
Methodology:
how to measure Intangibles
Most of the intangibles have no direct estimation
• Proxy indicators provide a solution
Asking companies’
representatives
• High degree of subjectivity
• deep understanding of respondents
• Much data available
Collecting data from public
available sources (by involving
few experts)
• Restricted information and data
available
• Estimations are less biased and more
objective
Methodology:
proxy indicators
The scale might be wrong but if we apply it for all
observations, at least we are able to compare them
conducting statistical analysis
Proxy indicators have to be validated for each particular case!
Ways to do that…
Examples:
• ‘board of directors’ qualification’ is used as a proxy indicator for the quality of all
human resources as expected to have a positive correlation with the qualification of
the staff hired
• ‘owners/directors ratio’ is used as a proxy indicator for principal-agent conflict as a
probability of a principal-agent conflict is rising with the decreasing involvement of
investors (shareholders) in corporate management
Methodology:
tools
Specification &
Econometric
tools
to establish causality
(avoiding endogeneity)
to estimate statistically significant relation
to conduct the analysis of the estimated
functions
Specification
Estimation tools
• linear relation
• framework of CES production
function
• panel data analysis
• structural equations modeling
• hierarchical multiple
regression
Methodology:
econometric specification
Inputs
Output/outcome
Control variables
to make an accurate estimation non significant factors can be skipped
• Every specification has to take into account:
• all value drivers (theoretically established)
• control variables related to country, industry, period
Research Questions
Intangible drivers of
companies’ competitive
advantages expressed in
EVA (industry benchmark)
Comparative study of different time periods:
before, during and after the economic crisis
Intangible drivers of
companies’ investment
attractiveness expressed in
MVA
Transformation of
companies’ competitive
advantages into investment
attractiveness (external
and internal drivers)
Comparative study of different European
markets: UK+Germany+France (prosperous
economy) and Spain+Italy (protracted
economic crisis)
Comparative study of different industries:
traditional vs. innovative, production vs. services,
high concentrated vs. industries with high
competition …
Examples of the Hypotheses
have to based either on failure of theory or on contradiction
faced in the empirical studies
The more flexible the company was (in terms of changing investment
strategy) the better its chances of survival during the crisis
The return to scale of intangibles employment changes across the
prosperity, crises and recovery periods
Traditional industries were less influenced by the crisis shocks in relation to
innovative ones
International penetration of UK and Germany companies provided them
with the survival support during the recovery period