Plantilla Corporativa I D06Cast

1
An Evaluation of Innovation Rankings Published
in Business Press by María L. García
Osma Universidad Autónoma de Madrid 6th PhD
and Early Career Researcher Conference Manchester
2009
2
Index

• 01 Motivation
• 02 Research Questions
• 03 Working Hypothesis
• 04 Working Model
• 05 Main Results
• 06 Conclusions and Future Work

3
Motivation
01
4
Research Questions
02

• Can innovative lists published in business press
  be used as a reliable source of information on
  firms innovative activities?
• Is there a financial halo in these rankings?
• Can these lists be used to identify innovative
  companies that are yet to be successful?

5
Working Hypothesis
03

• H1. Previous financial results have an effect on
  a company innovativeness as measured by
  innovation rankings
• H2. Innovation rankings can be used to identify
  innovative firms
• H3. Innovation rankings provide information on
  current successful innovators but not on future
  ones

6
Experimental Model
04

• INNOVATIVENESSi,t a0 a SIZEi,t b
  RDExpeni,t
• g PERFi,t d MTBi,t e INNOVATIVENESSi,t-1
  z CONCi,t

• INNOVATIVENESS dummy variable, which takes the
  value of 1 if the firm is included in the list
  and a value of 0 otherwise
• SIZE as measured by the book value of
  end-of-year Total Assets
• RDExpen RD intensity (RD Expenditure divided
  by Total Sales)
• PERF Financial performance, measured by ROA (Net
  Income / Total Assets)
• MTB Market-to-Book Ratio (Market value / Total
  shareholders equity)
• CONC Sector concentration measured by the
  Herfindahl-Hirschman index (HH index)

7
Experimental Model Sample and
data description
04

• Most innovative companies as identified by
  Worlds Most Innovative Companies list
  published in Business Week, due to its
• Methodology Relevance
• 2800 US Companies from 2000 to 2007

8
Empirical Results Prior financial results
and innovativeness (H1)
05
INNOVATIVENESSi,t a0 g PERFi,t-1

• Previous financial results affect the innovative
  lists but,
• it does not mean that innovation rankings do
  not measure companies innovativeness past
  superior financial results could be result of
  previous innovative efforts

9
Empirical Results Prior financial results
and innovativeness (H1)
05
10
Empirical Results Usefulness of innovative
rankings (H2)
05
INNOVATIVENESSi,t a0 a SIZEi,t b
RDExpeni,t g PERFi,t d MTBi,t e
INNOVATIVENESSi,t-1 z CONCi,t
Note PERF is not significant for year 2007
11
Empirical Results Usefulness of innovative
rankings (H2)
05
INNOVATIVENESSi,t a0 a SIZEi,t b
RDExpeni,t g PERFi,t d MTBi,t e
INNOVATIVENESSi,t-1 z CONCi,t

• Poor fit Low Pseudo-R2 and not significant
  coefficients
• Alternatives
• Most innovative lists do not measure companies
  innovativeness
• The model has been incorrectly defined
• Parameters have been poorly chosen

12
Empirical Results Usefulness of innovative
rankings (H2) Size
05

• Bigger companies seem to be considered better
  innovators by innovation rankings
• Market Capitalization increases model fit
  innovators are asset light or industry experts
  measure size with Market Capitalization

13
Empirical Results Usefulness of innovative
rankings (H2) Financial performance
05

• Only variables related to size are significant,
  thus PERF will not be included in model

14
Empirical Results Usefulness of innovative
rankings (H2) RD expenditure
05

• RD Expenditure, instead of RD Intensity will be
  included in the modified model
• Although the percentage of all companies with RD
  expenditure has remained stable for the last 5
  years, the number of most innovative companies
  without RD expenditure has risen steadily

15
Empirical Results Usefulness of innovative
rankings (H2) MTB, Concentration and Sector
05

• MTB is not significant, thus it will not be
  included in model
• Market Concentration is not significant to
  determine a company innovativeness as measured by
  innovation rankings
• Previous innovativeness is key to explain firms
  inclusion in innovation rankings
• Sector has been used for portfolio analysis but
  it has not been included in the model

16
Empirical Results Usefulness of innovative
rankings (H2)
05
INNOVATIVENESSi,t a0 a SIZEi,t b
RDExpeni,t e INNOVATIVENESSi,t-1

• Revised model
• INNOVATIVENESS
• SIZE Size of the company, as measured by its
  Market Capitalization
• RDExpen Measured as total RD Expenditure
• Despite providing a better fit, it does not
  include well-known and widely accepted
  determinants of innovation in firms...
• But it is not possible to reject the hypothesis

17
Empirical Results Future financial results and
innovativeness (H3)
05
INNOVATIVENESSi,t a0 g PERFi,t1

• it seems that prior financial results provide a
  better fit than current or future financial
  results, which could be interpreted as meaning
  that innovation rankings provide more information
  on past innovators than on current or future
  ones..
• Pointing towards the acceptance of this
  hypothesis

18
Empirical Results Future financial results and
innovativeness (H3)
05
INNOVATIVENESSi,t a0 g PERFi,t1
19
Conclusions
06

• On average, Most Innovative firms are bigger and
  more successful than their peers
• Size, previous innovativeness and financial
  results seem to be the key determinants to be
  included in these rankings
• These lists provide more information in past
  innovators than on current and future ones

It is advisable to proceed with care when using
these rankings as source of information for
Academic Studies
20
Future work
06

• Test the initially proposed model with a larger
  data set, namely INE or CIS survey (EUROSTAT,
  2004) micro-data, to verify its validity to
  identify innovativeness
• Build portfolios of innovative companies as
  identified by innovation rankings and other
  containing companies identified as most
  innovative with the proposed model and comparing
  the returns of the portfolios, to throw more
  light into the usefulness of these rankings

21

• Thank you, very much!
• Questions?