In the race for sustainability and financial excellence: advancing firms' investment in knowledge assets and innovations
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2021
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2564
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eng
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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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Khalil, Muhammad Azhar (2021). In the race for sustainability and financial excellence: advancing firms' investment in knowledge assets and innovations. Retrieved from: https://repository.nida.ac.th/handle/662723737/6157.
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In the race for sustainability and financial excellence: advancing firms' investment in knowledge assets and innovations
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Abstract
This dissertation focuses on the firms’ investment management decisions regarding knowledge assets (intangible assets), innovation, sustainable investments, and other knowledge management practices through which firms generate both financial benefits and improved environmental outcomes. The previous title of this dissertation was ‘In the race for excellence: the role of knowledge assets and innovation’ (as appeared in the IRB document). The overall agenda is classified and decomposed into three major interrelated sections in an attempt to achieve the goals of this research. The main objective of the first study presented in Chapter 2 is the development and implementation of empirical models to examine the nonlinear impact of the key intangible assets and innovation formation through R&D on the firms’ financial performance of Asian countries. The difference between intangibles (knowledge-assets) and innovation and their combined impact on firm performance remains a puzzle since all types of knowledge assets are not of equal importance. Also, firms with higher spending on innovation can perform well. Integrating these two literature approaches, this study investigates how knowledge-assets and innovation impact firm performance by analyzing the sample of 2958 listed companies of Asian countries during 2015 – 2019. Using time fixed-effects panel regression with industry and country dummies, we observe that different sectors exhibit a strong heterogeneity in their investment level in knowledge assets and innovation. The study finds that more knowledge-assets negatively impact firm performance, but up to a point. The U-shaped relationship found suggests that learning and accumulating capabilities to exploit knowledge assets potential is essential to achieve higher firm value. We also find that firms' more spending on innovation positively impacts firm performance, but only up to a certain level. An inverted U-shaped relationship found suggests a balanced investment in innovation activities to attain improved firm performance. The main contribution of this study lies in identifying novel implications of these considerations, and offer novel evidence of their empirical relevance in four ways: (i) Difference between measures of internally generated and externally acquired knowledge-assets and measures of innovation; (ii) Theoretical and empirical justifications of U-shaped relationship between knowledge-intensity and firm performance; (iii) Support Schumpeterian theory of creative destruction by innovation; (iv) Theoretical and empirical explanations of inverted U-shaped relationship between innovation-intensity and firm performance.
Next, we have extended this model in our second study to capture the environmental impacts of the investments in innovation by employing a set of Environmental, Social, and Governance (ESG) indicators presented in Chapter 3. Recently, the level of climate change has substantially been rising; relatively not much is known on ‘how’ companies alter the association between their environmental performance and financial performance within the context of specific elements of innovation: conventional innovation and green innovation. Drawing upon the stakeholder theory and the natural resource-based view of the firm, this research uses firm-level Environmental, Social, and Governance (ESG) data of 462 companies across 7 Asian countries for the period 2015 – 2019, and employs time fixed-effects panel regression with country and industry dummies. We find that measures of innovation (i.e., conventional innovation and green innovation) are beneficial to the firm value. However, the positive effect of conventional innovation on the firm valuation builds at the expense of the environment since it poses a significant threat to environmental quality by positively contributing to carbon emissions. Whilst firms’ investments in green innovation are advantageous to either type of firm performance. Further analysis shows that firms that focus on environmental practices generate significant outcomes, e.g., improved financial performance, suggesting that firms should prioritize their green investments to enhance the innovation outcomes so as to achieve superior financial value and to attract potential environmentally proactive stakeholders. The contributions of this study to the stream of sustainable finance, innovation, and environmental management literature are fourfold. First, firm-level studies on environmental performance have been scant, mainly due to the unavailability of the data. Those who studied this phenomenon primarily relied upon the data collected through survey questionnaires on a specific group of firms within a particular sector and country. Since the growing Asian economies are being successful when evaluated basis on their swift growth, however less effective in preservation of environmental damage compared to other regions. Thus, we conduct this study in the Asian region by using firm-level ESG performance data, which allows us to uncover this existing challenge in cross-sectoral across different countries. Second, previous studies solely emphasize the broader aspects of R&D-augmented innovation and its outcomes on a specific performance measure, instead; in this study, we filled this gap by decomposing innovation into two types in which firms invest simultaneously and investigate their joint impact on various performance measures – financial and environmental. Third, our findings offer insights on the importance of complying with the environmental policies by investing in green innovation with an awareness that bringing an essential change in redesigning products for environmental sustainability via employing non-toxic materials in the production processes, using eco-packaging, eco-friendly labeling, lower energy consumption, and improved recycling and decomposition designs would enable firms to achieve productivity. Productivity improvement in the resources would allow these firms to obtain higher financial and environmental performance. The findings also contribute to the sustainable investment literature by signifying the investments in green innovation, since green innovation serves as the vital component through which firms could obtain market related benefits from their environmental investments, introducing systematically the steady chains of sustainable products and services with improved functionality and layout i.e., better recycling design, reduced energy consumption level, lowered exploitation of natural resources and materials, and improved product/service’s functionality with the better lifecycle. These eco-friendly products/services are shown to be advantageous to the companies in terms of gaining green products’ market share, formation of green branding, and the likelihood of setting premium prices. These benefits are specifically crucial to those firms who longing to be competitive in the green industry and to enhance their revenues and returns on investment.
Lastly, one of the limitations of the first study reported in Chapter 2 is that our investigation was limited to the analysis of knowledge assets which, though on a positive note, has been identified and codified in company statements – the objective data were accessible from public domains. However, we did not include intangible knowledge of certain other forms, such as managerial talent, practices, and tacit and explicit knowledge owned by employees which may meaningfully contribute to the firms’ entrepreneurial and innovation process. Against this backdrop, therefore, moving beyond the question of how innovation affects firms’ financial and environmental outcomes, to build theoretical insights and develop an approach that encourages us to estimate a firm-level model to quantify how firms’ innovative capabilities contribute to organizational learning (knowledge sharing) and corporate entrepreneurship. In particular, this study presented in Chapter 4 examines the role of organizational innovative capabilities on the relationship between knowledge sharing, corporate entrepreneurship, and firm performance. Specifically, this study uses the knowledge-based view (KBV) to develop a model that examines the mentioned relationship. Using survey data from 520 participants across 75 service sector companies in Thailand, measurement and structure models are tested through Structural Equation Modeling (SEM) to quantify the impact between constructs. The findings of this study show that knowledge sharing and corporate entrepreneurship positively affect organizational innovative capabilities and firm performance. A positive relationship is also found between knowledge sharing and corporate entrepreneurship. The mediating impact of organizational innovative capabilities strengthens the relationship between knowledge sharing and corporate entrepreneurship on firm performance. These findings contribute to the knowledge-based view, innovation management, and entrepreneurship literature by suggesting that to improve organizational learning and knowledge-based performance, commitment, and understanding of the employees in the entire organization is crucial. Knowledge sharing significantly contributes to developing innovative abilities because of its characteristics of providing firm-specific and socially complex advantages. The way a firm transforms and exploits its knowledge may ascertain its level of innovativeness, such as coming up with certain problem-solving procedures and new product development according to the rapid change in the market demand.
We believe that the findings of this research are instrumental to management, practitioners, academics, and policymakers in offering key insights on optimal investment strategies concerning knowledge assets and innovation. This research offers ways to advance innovation such that to achieve higher firm value and better environmental prospects. Finally, this research instigates the tools to effectively organize knowledge as knowledge sharing boosts entrepreneurial practices and contributes towards innovativeness across individuals, groups, units, or the entire organization.
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Thesis (Ph.D. (Business Administration))--National Institute of Development Administration, 2021