Linking Corporate Entrepreneurship to Financial Theory through Additional Value Creation

Abstract

The study of corporate entrepreneurship (CE) has principally used accounting measures to gauge a firm's CE activities, even though it has increasingly been recognized in entrepreneurial research that more appropriate, theory-based measures are required to provide an accurate picture of a firm's CE performance. This study links corporate entrepreneurship to financial theory by advancing additional value creation (AVC) as a better measure of performance for corporate entrepreneurship activities and based on the output of the firm, rather than the usual accounting measures that are input based.

Entrepreneurial Orientation and Firm Performance – Challenges for Research and Practice

“…Another way of tackling the problem of fragmented financial performance measurement is suggested by Vozikis et al (1999), who suggest a model of evaluating EO impact on firm performance through additional value creation: greater than expected dividend growth rate. These authors merge efficient market theory and financial theory with EO to suggest that corporate entrepreneurial activities are more accurately evaluated by the market stock value.…”

Corporate Entrepreneurship

“…Ireland et al (2006a;2006b) noted that "to simultaneously develop and nurture today's and tomorrow's competitive advantages, advantages that are grounded in innovation, firms increasingly rely on "corporate entrepreneurship." CE and the behavior through which it is practiced has been initiated in established organizations for a host of purposes, including those of profitability (Vozikis et al, 1999;Zahra, 1993), strategic renewal (Guth and Ginsberg, 1990), innovativeness (Baden-Fuller, 1995), gaining knowledge to develop future revenue streams (McGrath et al, 1994), international success (Birkinshaw, 1997), and the effective configuration of resources as the pathway to developing competitive advantages (Borch et al, 1999;Covin and Miles, 1999;Covin et al, 2000;Ireland et al, 2003b). Regardless of the reason the firm decides to engage in CE, it has become a major focus for researchers to examine (Morris et al, 2008).…”

Measuring the benefits of entrepreneurship at different levels of analysis

“…Specifically, they calculate Q as the ratio of the market value of the organisation (measured as the sum of the market value of equity and the book value of total liabilities) to the book (accounting) value of total assets. Vozikis et al (1999) suggest the use of additional value created. Stern, Stewart and Chew (1995) promote the use of economic value added [EVA], emphasising the notion of incremental increases in value.…”

“…While research which uses selfreport data verified with financial data may be presented as having enhanced validity (Zahra 1995), arguably it is also subject to the limitations inherent to each data source, noted above. Last, in the context of studies referencing financial performance to clear financial measures, there is a trade-off between the use of more advanced financial measures such as Q, EVA (Stern et al 1995) and additional value created (Vozikis et al 1999) and the understandability and familiarity of such measures for researchers and practitioners in non accounting and finance disciplines.…”