The effects of intangible investments on future OCF

Abstract

PurposeThe main purpose of this study is to investigate the relationship between intangible investments (R&D, advertising, training, software acquisitions and quality) and the ability of firms to generate future OCF (hereafter cash‐flow from operations).Design/methodology/approachThe authors developed dynamic panel models to estimate the relationship between intangible investments and three subsequent periods cash flows. These models are estimated using generalized method of moments (GMM), on a panel of 300 observations related to 50 Tunisian manufacturing firms and six years of data (2001‐2006).FindingsThe findings show a positive and significant effect of intangible investments on future operating cash flows. First, this result confirms the main hypothesis of resource based view (RBV). Second, it is found that investments in R&D, quality, and advertising have significant effects on future cash flows from operations. While the effect of R&D activities and quality persists until the third lagged period, the effect of advertising expenditures is rapid and temporary.Practical implicationsThe investigation provides an empirical validation on the role of intangible investment in generating and sustaining competitive advantage. The significant effect of R&D and quality expenses indicates the role of these activities in adding value to the firm product, and hence in the creation of competitive advantage which allows the firm to manage the components of its operating cycle, especially cash received from customers, resulting in superior future cash flows from operations.Originality/valueFirst, the use of cash‐flow basis, as an alternative approach to accrual basis, for intangibles valuation avoids the shortcomings of accrual‐based performance measures in forecasting future operating cash flows because of earnings management practices. Second, the majority of the research dealing with the valuation of intangibles has been conducted in the context of developed countries, therefore in terms of the relevance of intangible investments significantly less is known about emerging economies. The choice of Tunisia, in this regard, is a particularly important contribution to the research on emerging economies.

Application of an intangible asset valuation model using panel data for listed enterprises in Vietnam

“…The regression results of equation (6) show that coefficients α and β are similar in three regression equations. The regression results of the random effects model with the dummy variable of the industry show that the sum of coefficients α and β equals 1.…”

“…Therefore, the cost function is different from that of Yamaguchi (2014): The cost function can be estimated by equation (11). it Q , , α and β can be collected by equation (6).…”

“…It is due to intangible assets. These assets are one of the key sources of comparative advantages for companies (Boujelben & Fedhila, 2011). They also help companies to have better brand image and build customer loyalty (OECD, 2008).…”

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“…Human capital investments involve "an initial cost (tuition and training course fees, forgone earnings while at school and reduced wages and productivity during the training period) which the individual or firm hopes to gain a return on in the future (for example, through increased earnings or higher firm productivity)" Moulton, 2004 Intangible investments are "activities in which producers devote resources in one period with the intention of improving products, processes, or knowledge for use in future production" European Commission, 2006 "…research intensive enterprises invest not only in R&D and innovation, but also in other forms of Intellectual Capital. Empirical studies provide evidence for the tight link and contingency between investments in R&D, innovation, human resources and relational capital" Boujelben and Fedhila, 2011 "Two types of expenditures can be regarded as alternative forms of intellectual capital investments that contribute to shareholder value: advertising and R&D expenditures" Gaol, Kadry, Taylor and Li, 2013 R&D expenditure is "a part of structural capital" Sydler, Haefliger and Pruksa, 2014 "Investors view labor costs as a rough metric for human capital investments" Goldin, 2014 Human capital investments are "investments in people (e.g. education, training, health)" that "increase an individual's productivity" OECD, 2015…”

Application of Intellectual Capital Financial Valuation Methods Under Conditions of Economic Recession

“…Issues of intellectual capital definition and structure are still being researched in the IC theory from the evolutionary point of view (Choong, 2008;Tan et al, 2008;Vlismas et al, 2011). The impact of IC management and reporting on organization's performance is explored quite actively up to now (Alwert et al, 2009;Moeller, 2009;Boujelben & Fedhila, 2011;Maditinos et al, 2011). Examples from different industries and regions are discussed trying to find out some tendencies and set up kind of the best practice of IC measurement and reporting (Yi and Davey, 2010;Diez et al, 2010;Rashid et al, 2012;Mehralian, 2012).…”