The objective of this paper is to determine whether corporate financial performance may be influenced from intangible assets owned by a company and some special incurring expenditures benefiting the intangible value of the company even though such items could also be technically expensed contrary to getting capitalized. Combining the intangibles reported on the corporate balance sheets with the expenditures such as R&D, staff and advertising expenses, a variable called Calculated Value of Intangible Factors (CVIF) is specifically generated and is examined as to whether intangibles alone might potentially have a significant effect on corporate profitability ratios, and if so to what extent. The sample consists of non-financial public companies traded at Muscat Securities Market in Oman and the sampling period covers the time window from 2013 until 2017. Two regressors are used to capture the effect of intangible factors; meaning CVIF and CVIF/Total Assets (CVIFTA) respectively, the latter of which is a relative measure. Four (4) profitability measures, namely Gross Profit Margin (GPM), EBIT Margin (EBITM), Net Profit Margin (NPM) and Return on Assets (ROA) are developed as proxies to indicate for corporate financial performance. Considering all the resulting eight (8) models each, panel data regression analyses are performed separately to specifically document the linkage between corporate intangibles and corporate financial performance. Results provide a strong evidence by showing that intangibles do have a significant and a positive effect on corporate financial performance, except when ROA is regressed by CVIFTA rather than CVIF. This effect on and the linkage with financial performance is documented to be the most robust once GPM and NPM are to indicate the performance in the forms of CVIF and CVIFTA respectively.
Research question: Utilizing the tenets of oligopoly competition that is a well-known type of imperfect rivalry, this study is interested in building a financial theory of inter-company price or pricing (ICP) economics and documenting its direct affinity with corporate financial reporting in general and corporate financial statements in particular. It is also interested in executing an analytical application unveiling the straight linkage of ICP with financial disclosure. Motivation: There is an extant body of literature that examines different ICP structures for different companies and industries or markets. However, the literature is silent in corroborating any explicit association that we argue and show does exist between ICP and accounting. To the best of our knowledge, this is the first study to break this silence. Idea: Cost advantage and operating profit are exploited to do the theorization and accounting implementation, by justifying the linkage between ICP and business financial statements. Findings: Investigations show that given that businesses transact or compete with each other at arm’s length terms under oligopoly competition with a Stackelberg game; ceteris paribus, the operating profit figure of the business with cost advantage will be higher than the operating profit figure of the business without cost advantage. Investigations also show that given that businesses transact or compete with each other at arm’s length terms under oligopoly competition with a Stackelberg game; ceteris paribus, asset size, earnings before interest and taxes (EBIT), earnings before taxes (EBT) and hence net income/profit after tax (NPAT) figures of the business with cost advantage will always be higher than asset size, EBIT, EBT and therefore NPAT figures of the business without cost advantage. Investigations further suggest that given that businesses transact or compete with each other at arm’s length terms under oligopoly competition with a Cournot game where there is neither any cost advantage nor disadvantage one way or the other; ceteris paribus, the operating profit, asset size, EBIT, EBT and NPAT figures of the interacting business among the others will be identical.
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