shortcomings in the measurement of innovation

JOURNAL OF MANAGEMENT AND GOVERNANCE, vol. 4, nº 4, 2000, pp. 1-24.
SHORTCOMINGS IN THE MEASUREMENT OF
INNOVATION: IMPLICATIONS FOR ACCOUNTING
STANDARDS SETTING*
Defectos en la medición de la innovación: implicaciones para la emisión de
normas contables
Leandro Cañibano
Catedrático de Economía Financiera y Contabilidad
Universidad Autónoma de Madrid
Manuel García-Ayuso
Profesor Titular de Economía Financiera y Contabilidad
Universidad de Sevilla
M.Paloma Sánchez
Catedrática de Economía Aplicada
Universidad Autónoma de Madrid
* We thank participants at the Understanding Innovation Conference held at Johns Hopkins
University in June 1997 and at the Conference Comprendere l´Innovazione nell´Industria
Farmaceutica held in Rome, Italy in June 1998, as well as two anonymous referees for their helpful
comments and suggestions. This research is part of the MERITUM project. The funding provided by
the European Union within the framework of the TSER program is gratefully acknowledged.
Abstract.- Keywords.- 1. Introduction.2. Conceptual and methodological problems in surveys of innovation
2.1 Innovation studies: the need for international harmonisation.- 2.2. Remaining problems in
innovation studies.3. Measurement of innovation based on financial statements.3.1.Accounting for intangibles: Current practices.3.2. Proposals for the improvement of financial statements.4. Empirical studies of innovation in Spain.4.1 Studies of Innovation.5.The relevance of accounting information and the technological level of the firm.5.1. Hypothesis.- 5.2 Sample.- 5.3. Method.- 5.4. Results.6. Concluding remarks.- References.
ABSTRACT
Innovation is nowadays a fundamental determinant of value creation in business companies and
economic growth. Therefore, the measurement of innovation has become a significant concern both
for business companies and governments. Traditionally, attempts to measure innovation have adopted
a macroeconomic approach, as they have been largely based on broad surveys. However, no attempt
has been made to date in order to complement the information provided by such surveys with
aggregated data obtained from the financial reports of individual companies. This paper analyses the
conceptual and methodological problems underlying the measurement of business innovation by
means of surveys and discusses the lack of ability of accounting standards to accurately reflect
innovative activities in the financial statements of business firms.
In the light of the evidence provided by the empirical studies published to date, we analyse the Spanish
situation by reviewing innovation studies conducted by the National Institute of Statistics (INE), and
assessing the relationship between the value relevance of accounting information and the firm's
technological level. Our results suggest that both, micro- and macroeconomic approaches towards the
measurement of innovation have significant shortcomings. Thus, a joint effort seems to be needed in
order to overcome the methodological limitations affecting innovation studies based on surveys and
those relying on financial accounting information. Despite their limitations, surveys provide a sound
basis for the identification of trends, key factors and explanatory variables. On the other hand,
financial statements could provide a sound basis for the measurement of innovation if they included
more relevant information on the intangible determinants of the value of companies. This has obvious
implications for the standard setting process.
Key words: Intangibles, Innovation surveys, Innovation measurement, Accounting for intangibles,
1
1. INTRODUCTION
During the last few decades, we have moved into a fast-changing, knowledge-based economy,
in which innovation is essential for the future success of the firm. As a result, intangible
investments are currently seen as the fundamental determinants of the value of companies
operating in a large number of industries.
Measuring innovation accurately and assessing its impact on economic activity is
likely to result in an improvement of the efficiency of resource allocation in an economy both,
at the macro and the microeconomic level. Therefore, it is important for a wide variety of
agents such as policy makers, investors, creditors and managers of business firms.
Public sector organisations need information on innovation activities in an economy in
order to design and implement economic, social, scientific and technological policies and
control their outcomes. On the other hand, in order to make investment and credit decisions,
users of financial information disclosed by business companies need relevant information on
innovative activities, as these are among the fundamental determinants of the value of
companies.
Traditionally, attempts to measure innovation in an economy have been based on
surveys of broad samples of companies whose innovative activities were quantified by means
of questionnaires. However, due to a number of methodological shortcomings, the results of
such surveys may have a limited usefulness.
An alternative approach towards the measurement of innovation focuses on the
financial reports of business firms in an attempt to assess the total innovative effort by adding
the amounts invested in intangibles by all companies incorporated in a certain territory.
Unfortunately, a significant part of the intangible investments made by a firm is absent from
its financial reports, as in most countries accounting standards prescribe the immediate
expensing of the amounts invested in intangible activities. In industries in which knowledge is
the main source of future benefits (and, consequently, should be considered as an asset), the
information provided by financial statements may have little or no relevance at all, as in most
countries investments in if R&D and other innovative activities are not appropriately reflected
in corporate financial statements, either because they are fully expensed as incurred or
because they are amortised over short periods of time.
In this scenario, accounting standard setting bodies and policy makers are faced with
the need to provide guidelines for the disclosure of information on intangibles in order to
2
assist investors and managers in their decision making processes and have a consistent basis
to estimate the total innovative effort in the economy.
In light of the latest analyses carried out at the international level, this paper addresses
the methodological problems arising in the measurement of innovation and provides empirical
evidence from Spain. We first discuss the methodological shortcomings in the measurement
of innovation by means of surveys and the usefulness of accounting information for the
purposes of innovation measurement. Next, we review the results of the surveys carried out to
date in Spain and illustrate some of the conceptual and methodological problems associated
with the measurement of innovation. Finally, we provide empirical evidence on the lack of
ability of financial statements to provide a consistent basis for the valuation of innovative,
intangible intensive firms.
The remainder of the paper is organised as follows. Section two discusses the
conceptual and methodological issues arising in the measurement of innovation by means of
surveys based on the first two editions of the Oslo Manual. Section three delves on the value
relevance of intangibles, points out some limitations of the current accounting model and
suggests directions along which the relevance of financial statements could be enhanced.
Section four contains a brief summary of the results of the studies of innovation conducted in
Spain to date. Section five presents the results of an empirical analysis of the existence of
differences in the relevance of accounting information across industries and portfolios formed
on the basis of the degree of innovation of the firms, and section six contains some
concluding comments.
2.
CONCEPTUAL AND METHODOLOGICAL PROBLEMS IN SURVEYS OF
INNOVATION
2.1
Innovation studies: the need for international harmonisation.
The first attempts to develop indicators to supply information on science and technology date
from the mid-60's and were carried out within the OECD. The acceptance of the linear model
of innovation that considers technological development as the result of a series of steps
starting with research, explains why for more than two decades the amount of resources
invested in R&D was the main indicator used.
The realisation that the process of innovation is interactive, complex and plagued with
discontinuities and feedback, spurred interest in the analysis of the mechanisms of innovation.
3
In the 80's, the limitations inherent to the indicators of science and technology used thus far
(R&D as input and patents as output) fostered the development of new measures and gave rise
to a number of studies of innovation. Their results showed that R&D was just one of the
activities that firms have to undertake in order to innovate. Design studies, engineering,
marketing, acquisition of technology, both disembodied (i.e. patents) and embodied
(equipment) are all equally relevant. Thus, innovation started to be considered as the result of
both tangible and intangible investments.
In 1992 the OECD published the Oslo Manual, defining a common terminology and a set
of guidelines for studies on innovation that should allow to better understand the phenomenon
and provide measures that were comparable across countries. The main concepts in the manual
were product innovation, either incremental (improved products) or radical (radically new
products) and process innovation (the adoption of new or better production methods).
The Manual covers a wide range of business activities that could lead to innovation
and points out all the different elements that should be taken into consideration in any study
of innovation, such as the goals of the firm, the factors that catalyse or inhibit the process,
criteria for the identification of innovative firms and the number of innovations, the costs of
innovation, the impact of its results, etc.
Since the Manual was published several member countries of the OECD, including
Spain, have carried out surveys to measure innovation following its guidelines. The
EUROSTAT (Statistical Office of the European Commission) launched a Community
Innovation Survey (hereafter CIS) whose third edition is about to begin1. The main purpose of
this survey was to provide a comparable view on the innovative activities carried out in all
countries of the European Union. Right from the outset of the CIS, a large number of
shortcomings and omissions in the Manual were documented, which eventually lead to its
revision. Consequently, the results of all studies carried out using the guidelines of the first
Manual have significant limitations. An amended version of the Oslo Manual was produced in
1996 and a new draft is currently under discussion.
2.2
Remaining problems in innovation studies
The 1996 edition of the Oslo Manual identified and overcame some of the weaknesses of the
first version. For the purposes of this paper, there were two major improvements: First, the
1
CIS 1 was carried out for the reference year 1992, CIS 2 was launched in 1997 and referred to 1996, and CIS 3 is
planned to start early in 2001 and will be referred to 2000.
4
new approach towards the analysis of the innovation process was more systemic. The revised
Manual clearly acknowledged that innovation is not an isolated event and that relationships
with other elements of the system (suppliers or customers, research centres, government
institutions, etc.) are important and so is their accurate measurement. Second, while the first
edition was only applicable to manufacturing industries, the revised version is also useful to
analyse service firms.
However, there are some problems still remaining in the 1996 version of the Manual
that are likely to limit the usefulness of results of innovation studies. Some of these
shortcomings have been addressed recently by the OECD and EUROSTAT in a discussion
that may result in a a new version of the Oslo Manual and an improved questionnaire for the
third Community Innovation Survey:2
1. Both researchers and policy makers have only access to aggregated data. Data at company
level remain unknown because of the confidentiality that the statistical units responsible
for the survey must ensure. Therefore, it is not possible to analyse the best practices and
perform benchmarking exercises.
2. There is a lack of timeliness in the disclosure of results because of the delay with which
data is collected and analysed. For example, the first results of the CIS referred to 1992
and 1993, and were only available in 1996. Also, the preliminary results of the second
CIS, based on data from 1996, were published in 1999, and their final analysis was
disclosed in May 2000. Although there is a tendency to shorten this gap the delay is at
least two years and this makes the results of innovation analyses useless for short term
policies.
3. Organisational innovation and human resources management still have not been properly
analysed. The literature published to date does not consider human resources management
and technological innovation as complementary, but rather understand the former as a
precondition for the latter. So far, it has not been possible to reach an agreement about
how to address these issues in the innovation survey questionnaire. The very concept of
innovation is now under discussion and several questions remain unanswered: Should the
2
A Eurostat Task Force was set up in November 1999 to review the Oslo Manual concepts and procedures. The
preliminary results of this Task Force were discussed at the last meeting of the Working Party of National Experts on
Science and Technology Indicators of the OECD, held in Paris in 5-7 July, 2000. Some of the changes proposed are
coincident with our views, expressed in earlier versions of this paper.
5
analysis refer only to “technological” innovation? Should the word “technological” be
eliminated and therefore consider any kind of innovation?
4. Finally, there is a severe problem underlying all the analyses. The preparation of the
Manual and the design of the questionnaires have taken place without the participation of
entrepreneurs and without taking into consideration any information collected by firms for
their own use, whether it be for internal decision making or for the use of external parties.
In some cases, the data requested cannot be obtained from the firms’ information systems.
Figure 1 provides a quick overview of the divergence between the studies of innovation
conducted using the guidelines of the Oslo Manual and the financial information prepared
by firms.
[Insert Figure 1 here]
In short, innovation studies carried out during the last decade on the basis of surveys that
use a harmonised set of concepts have provided a comprehensive view of innovation trends as
well as a useful tool for macro policies. However the shortcomings discussed above limit the
usefulness their results for the identification of “best practices”, the implementation of
benchmarking strategies and the design of short-term policies. Moreover, the innovation studies
reviewed in this section fail at providing information on main drivers of innovation in the new
economy, that is, human capital and organisational change.
Our argument in the rest of this paper is that an improvement of the financial and non
financial information disclosed by companies in their annual reports will help overcome the
limitations of innovation studies and will result in measures of innovation that are useful not
only for the management of business firms, but also for policy making purposes.
3. MEASUREMENT OF INNOVATION BASED ON FINANCIAL STATEMENTS
3.1 Accounting for intangibles: Current practices
Assets are defined as probable sources of future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events (FASB, 1985). Therefore, cash
disbursements that may be reasonably expected to produce future revenues, should be
capitalised and amortised over their estimated economic life. Whenever the association
between cash outlays and future earnings appears to be uncertain, costs should be
6
immediately expensed reducing current earnings. Therefore, accounting standards place a
great emphasis on the control that the firm has over the future benefits arising from current
investments. Moreover, according to the recognition criteria adopted by most accounting
standard setting bodies in the world, cash disbursements may only be capitalised and
amortised when they are separable, that is, when their amount may be reliably measured
(entry separability) and they may be sold separately from all other assets of the firm (exit
separability).
The accounting model places absolute pre-eminence on tangible assets as compared to
intangibles, because accounting standards setting bodies perceive that the cost of the former is
more likely to be accurately measured than the cost of intangibles. Furthermore, accounting
standards are based on the assumption that there is more uncertainty surrounding the future
stream of earnings arising from intangible investments than there is in the case of tangible
investments. In general, accounting standards tend to produce reliable accounting numbers to
the detriment of relevance.
Nowadays it is generally accepted that the future financial position of business
companies is not only the consequence of tangible investments, as intangibles are strongly
associated with the competitive position of the firm and its future earnings. Therefore,
traditional financial statements do not provide sufficient information on the fundmental
determinants of the value of companies.
If most intangible investments are immediately expensed both, earnings and the book
value and shareholders' equity will show a negative bias that will be greater the greater the
amount of innovative activities carried out by the firm.3 Consequently, financial statements
must provide more information on the intangible investments of business firms in order to be
a reliable source of data for the measurement of innovation.
In recent years, a number of researchers and members of the accounting profession
have claimed that financial statements are loosing relevance for investment and credit
decision making as a result of their lack of information on intangibles. The underlying idea is
that the measures of earnings and book values provided according to current accounting
standards are not meaningful within the context of the so-called knowledge-based economy, in
future earnings are mainly driven by the intangibles such as the innovative capacity of the
firm, the skill of its management, its ability to hire and retain the best personnel or its
3
If accounting could provide an accurate measure of the true value of all the assets (tangible and intangible) owned
by the firm (the net present value of all the future cash flows expected from the asset), then the book value of equity
should approximate the value of the firm. However, given historical cost valuation among other accounting practices,
7
customers' satisfaction (Ernst & Young, 1997). In other words, financial statements are
loosing ability to provide a true and fair view of the firms' financial position because the
criteria followed for the recognition and measurement of intangibles are based on premises
that are no longer sustainable in developed (knowledge-based) economies.
Some recent empirical studies have addressed this problem by looking at the pattern
followed by the Market-to-Book Ratio (hereafter MB ratio) and by statistical measures of the
value relevance of accounting numbers. Based on a sample of 300 firms over a twenty year
period (1973-1992), Lev (1986) examined how the time series of the MB ratio and showed
that it has increased significantly over two decades, from 0.811 in 1973 to 1.692 in 1992. This
not only indicates a change in the economic process of value creation, but also demonstrates
the loss of relevance of traditional financial measures. The values of the MB ratio in 1992
indicate that just about 40% of the market value of the median company was missing from its
balance sheet and that more than 50% of the market value of high-tech firms, whose median
market-to book ratio in ratio was 2.009, was not reflected in their financial statements
prepared in accordance with current accounting.4
In Sweden, Johanson et al., (1997) have shown that the average market value of the
firms listed on the Stockholm Stock Exchange was always higher than their average book
value for the period 1985-1994.
Obviously, the market value of companies is not only driven by intangibles. However,
recent research has shown that a significant part of the difference between the market value
and the book value of firms may be due to the existence of intangibles not included in the
balance sheet (Lev and Sougiannis, 1999; Ballester, Garcia-Ayuso and Livnat, 2000). Both
studies have estimated the value of the unrecorded R&D asset on the basis of a cross-sectional
and a time-series analysis, showing that unrecorded intangibles account for a significant
proportion of the difference between market values and book values. Specifically, Ballester,
Garcia-Ayuso and Livnat (2000) reported that the cumulative R&D asset accounts for an
average 32% of the difference between the market value and the book value of equity.
Looking at the values of the coefficient of determination in the regression of stock
returns or prices on earnings changes or earnings levels and book values, that have been
reported by empirical studies published during the last three decades, Lev and Zarowin (1999)
the book value of equity is not a good proxy for the intrinsic value of companies.
4
The market value of equity may be affected by a number of factors not related to accounting information or
unreported intangibles, such as market structure as well as industry-specific factors such as intensiveness of
competition, its entry or exit barriers, or its future potential profitability.
8
have shown that the explanatory power of accounting numbers is low and has in fact
diminished along with time.
Collins, Maydew and Weiss (1997) have tested the validity of that claim by regressing
stock prices on earnings and book values for a sample of US firms over the last four decades.
They computed the coefficients of determination R2 from various functional specifications of
the relationship between stock prices and accounting numbers and regressed them on a time
index, showing that although the incremental explanatory power of earnings has decreased
over time, the joint explanatory power of earnings and book values has increased slightly over
the last forty years. Based on a the results of a similar analysis, Francis and Schipper (1998)
have also provided empirical evidence of a significant increase in the explanatory ability of
earnings and book values for stock prices over the last four decades, thus contradicting the
conclusions of Lev and Zarowin (1999).
Therefore, it would appear that far from loosing relevance accounting numbers are in
fact becoming more useful for equity valuation. However, Brown, Lo and Lys (1999) have
shown that is conclusion is unfounded, as the increase observed in the coefficients of
determination is the result of an upward bias due to the over-time increase in the coefficient of
variation of scale. In fact, they showed that controlling for the bias results in a significant
decline in the value relevance of earnings and book values over the period 1958-1996 in the
US capital markets. Cañibano, García-Ayuso and Rueda (2000) have conducted a similar
analysis on the basis of a sample of European companies showing that the explanatory power
of accounting numbers and its behavior over time differs significantly across countries, as
although no significant increase was found in the explanatory power of any functional
specification, some countries showed a significant decrease in the joint value relevance of
earnings and book values, as well as on the incremental explanatory power of book values.
Interestingly, the value relevance of earnings did not show a consistently decreasing pattern in
most European countries.
Lev and Zarowin (1999) suggest that the reason for the decreasing value relevance of
accounting numbers is the increasing relevance of innovation as a determinant of the value of
companies. Since intangibles are not appropriately reflected in the financial statements,
investors' attention shifts from published accounting numbers to other financial and
nonfinancial indicators of the future financial position of business companies. Amir and Lev
(1996) have shown that nonfinancial variables such as indexes of market penetration or the
potential number of customers that proxy for intangibles, are fundamental drivers of the value
of companies in the wireless communication industry. Moreover, Hand (1999) and Trueman
9
et al. (2000) have demonstrated that the value of internet stock is better explained by
measures of internet traffic than by their net earnings.
As Steven Wallman (1995) stated "some of the new and most significant building
blocks of business has resulted in balance sheets that bear little resemblance to the true
financial position of the firms they are supposed to describe. For example, there are major
drug companies, such as Merck, that show no assets related to most of their break-though
products.... Coca-Cola trademark is not reflected as an asset... there are major software
companies, like Microsoft, whose stock is worth tens of billions of dollars with balance sheets
that make them look like much smaller companies"5 (1995; p.85).
The relevance of accounting information may be particularly low in fast-changing and
technology-intensive industries in which the value of companies is affected by economic
events that are reflected by accounting numbers with a delay. Amir and Lev (1996), GarcíaAyuso, Monterrey and Pineda (1997) and Deng, Lev and Narin (1999) have found empirical
evidence supporting this view.
Empirical research on the value relevance of intangibles shows a significant bias
towards R&D and advertising. Most studies have attempted to demonstrate that investments
in R&D and advertising result in increases in future earnings and, therefore, are positively
related to the value of companies. Whereas early attempts failed to provide empirical support
for that hypothesis, (Johnson, 1967; Milburn 1971), recent studies have found a positive
association between future profitability and investments in R&D (Sougiannis, 1994; Lev and
Sougiannis, 1996).
Lev and Sougiannis (1996) documented the existence of a systematic mispricing of the
shares of R&D-intensive companies, or a compensation for an extra-market risk factor
associated with R&D, as they found a significant inter-temporal association between firms'
R&D capital and subsequent stock returns. Chan, Lakonishok and Sougiannis (2000)
provided empirical evidence supporting this contention, showing that companies with high
R&D investments relative to their market value tend to show poor past returns and show of
mispricing. Therefore, it seems that the market fails to give these firms credit for their R&D
investments and that there is a need for increased disclosure of information on intangibles.
Based on an extensive review of the empirical literature published to date that have
analysed the relevance of intangibles for equity valuation and credit decision making,
Cañibano, Garcia-Ayuso and Sanchez (2000) have concluded that although not all intangible
investments are consistently related with future earnings, there is evidence supporting the
10
contention that there is a wide variety of intangibles that represent fundamental determinants
of the value of the firm, but are missing from the financial statements due to the conservative
accounting standards applied in most countries.6
Therefore, it appears that in order to increase the usefulness of financial statements for
investment and credit decision making, it is necessary to include in them more information on
the intangible determinants of the value of companies. We next discuss some alternative
courses of action that have been proposed to improve the quality of financial statements.
3.2
Proposals for the improvement of financial statements
The usefulness of financial statements may be increased by adding both, financial and nonfinancial data to the information currently disclosed by companies within the framework of
the current accounting model.
Any change in the criteria for financial measurement could affect all or some of the
statements disclosed within the framework of the current accounting model of financial
reporting. Introducing changes in the content or structure of the balance sheet and the profit
and loss account does not appear as a feasible alternative in the short run. Conversely,
increasing the information content of the notes to the annual accounts seems to be more
feasible. Finally, the easiest way to provide more information on intangibles in the financial
statements would be the disclosure of a set of guidelines that could be used by business
companies to publish comparable information on their intangible resources and activities.
Lev and Zarowin (1999) suggest that intangibles should be given the same accounting
treatment as tangible assets, that is, they should be capitalised and then amortised over the
period along which they generate revenues. In their view, predicting a stream of future
earnings involves the same uncertainties regardless of the tangible or intangible nature of the
asset, as in a competitive economy characterised by an environment of technological change,
the degree of certainty in estimating future profits depends less on the nature of assets than on
the characteristics of the market, e.g. the level of competition and the speed of technological
change.
5
The ratio M/B for Microsoft was 8 at the end of 1994,.
Although US accounting standards are believed to be less conservative than those of European countries,
advertising and R&D investments must be immediately expensed in the US (except for development costs in
software manufacturers), whereas some countries in Europe such as Italy or Spain allow the capitalization of both,
Research and Development and even certain advertising costs.
6
11
If we accept that there are not substantial differences between intangibles and tangible
assets, whether they are acquired from a third party or internally produced, we must agree that
all intangible expenses should be capitalised as long as they are sources of probable future
revenues. Thus expenditures on R&D, costs of product development, expenses for developing
brand names and increasing the portfolio of customers, as well as organisational and
restructuring costs should be capitalised and subsequently amortised. As stated by Lev and
Zarowin (1999), this accounting policy would end " the current absurdity that the bricks and
mortar of chemical, drugs, electronics, software, biotechnology and telecommunications
companies are considered assets, while the intangible investments that generate most of their
revenues are nowhere to be found in financial reports".
The main accounting standards setting bodies in the world do not seem to be willing to
introduce major changes in the content or the structure of financial statements. In fact, IAS 38
(IASC, 1998) represents a recent and clear proof of the conservative approach that standard
setters have towards accounting for intangibles. IAS 38 has been shaped according to the
views of the FASB, as the IASC is seeking for the approval of its set of core standards by US
regulatory agencies. Therefore, IAS 38 leaves a large number of relevant intangibles such as
internally generated brands, mastheads, publishing titles, human capital or customer lists out
of the financial statements.
Wallman (1996) suggests that traditional financial reporting (in black and white)
should be complemented with new ones that would include additional layers of information
(in color). The improved accounting model would require a relaxation in the recognition
criteria so that an item would presented in the financial statements divided into various layers.
The first layer would include items that satisfy the traditional accounting criteria for
recognition: being measurable, relevant and reliable. In the second level the reliability
requirement would be relaxed to include items such as R&D, advertising, brand names and
expenditures aimed at improving customer satisfaction. Successive layers would provide
information on intangibles that are more difficult to measure reliably, such as training and
recruiting expenditures.
Where would these new layers of information fit in? Are we looking at new
complementary financial statements, which would go to form part of footnotes or additional
information to be included in the Management Report? The difference is not a trifling matter.
In dealing with the former, accounting standards would be required which would have to be
recognised as Generally Accepted Accounting Principles. On the other hand in the latter case,
the matter is more flexible as it can range from a voluntary disclosure to an enclosure required
12
by the corresponding regulatory body; but always presented as an addendum to the main body
of the financial statement. Given the circumstances in which this proposal has arisen, in the
United States at the moment, the ball is being bounced back and forth between the SEC, the
regulator of the Stock Exchange, and the FASB, the accounting standards setting body.
In a recent study carried out by Ernst & Young (1997) and presented in February,
1997, at the mentioned international conference jointly organised by the OECD and the
Swedish government, they came to some interesting conclusions about the importance of the
non-financial measures which we have been referring to. About 60% of those interviewed
(275 investment managers) thought that these measures influenced between 20% and 50% of
their investment decisions. For another 20% of those interviewed, the figure rose to between
50% and 59%, while the remaining 20% said that they had no influence on their decisions.
The non-financial measures suggested in the study are: 1) the quality of management, 2) the
quality of products and services, 3) customer satisfaction, 4) the strength of corporate culture,
5) the quality of its relationship with its investors, 6) the pay and benefits received by
management, 7) the development quality of new products, and 8) strength in the marketplace.
The study concludes by pointing out the importance of measures 1), 2), and 5) based on the
fact that they had the greatest impact on share prices of the firms studied.
In sum, it appears that the current accounting model does not provide users of
financial statements useful information on the innovative activities carried out by the firm that
give rise to intangibles. Since modifying the content and structure of traditional financial
statements does not seem to be a feasible solution, it would be useful to agree on a set of
criteria for the identification, measurement and disclosure of information on the intangible
determinants of the value of companies that could be used by investors, creditors and policy
makers in their decision making processes.
4.
EMPIRICAL STUDIES OF INNOVATION IN SPAIN
4.1 Studies of Innovation
The first study of innovation in Spain was carried out in 1988 by the Círculo de Empresarios
(Circle of Businessmen, hereafter CE) a private non-profit organisation. Since the debate on
the Oslo Manual was already under way at that time, the method and the results of this study
were taken into consideration in the design of the Manual. In 1995, the CE published a study
following the guidelines set out in the first edition of the Oslo Manual (CE, 1995), in which
13
the qualitative aspects of innovation were examined. Also in 1995 the INE decided to carry
out the Spanish Survey of Innovation (hereafter SSI) following the guidelines of the Oslo
Manual as well. The data collected in the survey were related to the period 1992-1994. We
next present a summary of the results of these two surveys and compare them with the results
of the first CIS. There are a few issues that should be borne in mind when interpreting the
discussion presented below:
a. The results of the two Spanish studies are not entirely comparable with each other nor
with the CIS. Apart from the fact that the data do not refer to the same period of time,
they use different industry classifications and different size breakdowns. Furthermore,
in the study conducted by the CE, only large firms are considered and both
manufacturing and service firms are included, whereas the SSI and the CIS address
companies of all sizes but focus only on the manufacturing sector.
b. Statistical problems are also significant. The sample error in the SSI is above 25% in a
large number of cases, when intra-industry samples are considered, As a result, the
consistency of its results is low.
c. The high level of aggregation of the data used, together with the time lag, reduces the
usefulness of the results for policy making purposes.
The qualitative aspects of innovation are only addressed in the survey conducted by the CE.
The main results, compared with those of the CIS, are the following:
a. Methods of Protecting Innovations. There is no information for Spain, as no questions
were included in the questionnaire regarding this issue. For Europe as a whole,
innovation protecting mechanisms are seldom used and protection by means of patents
is rare. The situation is likely to be the same in Spain as several studies have shown
that the propensity of Spanish companies to register patents is low (Sánchez, 1988).
b. Sources of Information for Innovation. There is little difference between Spain and the
rest of Europe in this regard. The sources of information for innovation clearly depend
on the size of the firm and on its innovative intensity. This is measured by the ratio of
R&D expenditure to the volume of sales. For large highly innovative firms, the main
14
sources of information are internal (high levels of research activity, a strong
commitment of senior management, the presence of qualified employees, etc.). On the
other hand, for small firms that are less innovation intensive, the main sources are
external, mainly their clients.
c. The Objective of Innovation. The main objectives, not only in Spain but also in the
rest of Europe, are to expand the market share, to improve quality, to increase product
diversification and to reduce costs. The differences between Spanish and other
European firms in terms of objectives may be more the result of methodological
differences in the survey that a reflection of reality.
d. Barriers to Innovation. The major barriers to innovation for all European firms are of a
financial nature. Other barriers mentioned are resistance to change on the part of
executives, the lack of qualified personnel and uncertainty. Firms with the strongest
innovative spirit attached greater importance to each barrier; this could be an
indication that the really innovative firms are more aware of the importance of these
obstacles to innovation.
The major quantitative results based on the INE Survey are:
General Issues.
The concept innovative firm used in the SSI is different from that used in the European
Survey. In the latter, innovative firms are those that have developed products or processes that
incorporate technological changes of an incremental or radical nature in the period under
study. On the contrary, in the SSI innovative firms are those involved in activities associated
with the launching of new products or the development of a new process. Therefore, it could
be the case that although a firm is actively involved in the process, it may not have not seen
its innovative efforts rewarded with success and, therefore, may not have launched any new
product or incorporated any new process in the period under study.
The population analysed is about 163,237 firms, of which 10.71% would be classified
as innovative according to the definition adopted in the SSI. Only 25% of the innovative firms
appeared to be involved in R&D activities, which indicates that the vast majority of firms
innovate through channels other than research. This suggests that the ratio of R&D to sales,
15
which is considered to be most significant in the measurement of technological level of the
firm or the industry, may not be a good measure of innovation within the context of the
Spanish economy. On the other hand, other expenditures such as imports of disembodied
technology, could be more significant, being traditionally high for certain industries as has
been shown in other studies (Sánchez, 1984).
The SSI sorted classified industries into three groups: Group H (high level
technology) in which more than 25% of the firms are innovative; Group M (medium level
technology) in which between 10% and 25% of the firms are innovative; and Group L (low
level technology) in which less than 10% of the firms are innovative.7 We use this
classification in order to analyse the relationship between the technological level of the firm
and its market-to-book ratio in section 4.2.
The number of innovative firms clearly increases along with size. 70% of the firms
with 200 or more employees are innovative. As for capital ownership, it is interesting to note
that most firms (99%) are publicly owned. However, the low number of government owned
firms are more intensive in innovation, probably because they are involved in high technology
industries such as those related to defence and aerospace. Most firms (about 87%) could be
labelled as independent, as they are not partners of any national or multinational corporation.
However, those affiliated with some corporation are generally more innovative.
Indicators of Results.
The output indicators are the proportion of sales of new products and the ratio of exports to total
sales. Both indicators are significantly lower for most industries in Spain than in the rest of the
European countries. For high-tech European industries the proportion of sales resulting from
innovation is over 50%. In Spain, the industry with the highest ratio (motor vehicles) is below
30%. Surprisingly, industries considered traditionally as highly innovative, such as computer
software, electronic equipment and telecommunications, show relatively low values of the ratio.
On the other hand, traditionally low-technology industries such as textiles or food and
beverages, show very similar ratios to those found on average in the other European countries.
7
The specific sectors in each of the groups is as follows: High tech sectors are tobacco, coke, petroleum refining and
nuclear fuels, chemicals including pharmaceuticals, office equipment, computers, electronics components, radio
equipment, televisions and communications, aerospace and other transportation equipment. Medium tech sectors
are food and beverages, cardboard and paper, rubber and plastics, non-metallic minerals, non-ferrous metals,
ferrous metals, non-electrical machinery, electrical machinery, scientific instruments and automobiles. The low tech
sectors are mining industries, textiles, clothing and fur products, leather and foot ware, cork and wood products,
publishing, printing, manufactured metal products, shipbuilding, furniture, other manufactured goods, electricity,
16
These results seem to be consistent with the theory (Dosi, Pavitt, and Soete, 1990) that
predicts that when a firm is substantially behind the world leader, innovative efforts do not
result in a significant increase in market share. This has already been verified for Spain
(Sánchez, 1993). An increase in innovative effort only results in a significant increase in
market share in traditional or mature industries, that is, in those where the position of the
leader is not too far ahead of the rest of the firms in the industry. In our view this is a very
interesting outcome for the purposes of policy design, since it implies that innovative efforts
in traditional industries would have a direct impact on market share and exports.
Costs of Innovation.
In relation to innovation costs Spanish companies appear to be similar to European firms.
However, based on information obtained from additional sources, we believe that this
similarity is only apparent, as although the percentage of revenues devoted to R&D activities
is about the same (over 40 % in both cases) the figure is likely to be overestimated in the
Spanish case. On the one hand such figure probably includes investments in equipment, and,
on the other, it is very likely that Spanish firms are considering as R&D some activities that
other European companies do not consider as such.
The vast majority of all expenditures on innovation (89%) are financed with retained
earnings. Only 4% are funded by contracts with governmental agencies and the rest are
financed with funds from other sources, such as EC programs. The exceptions are the
aerospace and naval ship building industries, for which the level of internal funding is 42%
and 49% respectively, with a significant increase in government funding.
A particularly interesting aspect of this analysis is the relationship between innovative
intensity, as measured by the ratio of total expenditures on innovation to sales, and the results
of innovation, measured by the ratio of sales of new products to total sales. As expected the
relationship is positive and statistically significant both for European firms as a whole and for
Spanish companies. In Spain, 62% of the total amount of sales of new products result from
the investments in innovation.
In sum, the Spanish Survey of Innovation has allowed us to map Spanish innovative
companies in relation to the rest of Europe. We now know which industries are more
innovative and have a profile of the innovative company in terms of size, sources of
innovation, barriers and objectives. We also know, on average, the inputs for innovation
gas and water.
17
(breakdown of the different expenditures) and outputs (percentage of sales and exports due to
innovative products), but we still know very little about the process of innovation, that is,
about how those inputs are transformed into outputs. Intangible activities very often related to
human capital and organisational changes are key elements in such process and, as
mentioned, innovation studies tell us almost nothing about them.
We could also carry out a dynamic analysis by comparing the results of the innovation
studies considered in this paper with those of future surveys (the results of the Second
Spanish Innovation Survey and the CIS 2 are already available). However, such analysis
would not be useful for the design of micro- or short-term policy because of the aggregated
nature of the data and the time lag of the figures. Finally, no analysis of “best practices” or
benchmarking could be done because individual company data are not available.
5.
THE
RELEVANCE
OF
ACCOUNTING
INFORMATION
AND
THE
TECHNOLOGICAL LEVEL OF THE FIRM
As discussed above, the existence of intangible assets that are perceived by investors as
sources of future wealth but are not reflected in the book value of equity would result the
existence of a significant difference between the market value and the book value of the firm.
However, not all the difference between the market value of a firm and its book value of
equity is due to the existence of intangible assets, as some tangible assets could be
undervalued because of the historical cost recognition criteria and stock prices might not
always be unbiased estimates of the value of the firm.
5.1.
Hypothesis
We hypothesise that the Market-to-Book (M/B) ratio is significantly greater for firms in
which intangibles are more important. We conjecture that, since the level of technology is
likely to be consistently related to the importance (and value relevance) of certain intangibles,
and thus, we would expect firms with a higher level of technology to have a higher M/B ratio.
5.2.
Sample
For the purposes of our analysis, we selected a sample of firms quoted on the Madrid Stock
Exchange and a sample of pharmaceutical firms listed in stock exchanges all over the world.
18
Stock prices and book values were drawn from the records of the EXTELTM database. Our
initial sample covered the period 1990 to 19968 and comprised 148 Spanish firms and 289
pharmaceutical firms from the rest of the world. However, a number of observations had to be
discarded because of missing data. The final sample sizes were 824 and 1173 firm-year
observations respectively.
5.3.
Method
In order to assess the magnitude of the gap between the market and the accounting valuation
of the firm, we formed portfolios and computed the median market-to-book ratio. First, we
formed industry-specific portfolios according to the classification proposed by the Madrid
Stock Exchange. We then restricted our attention to manufacturing firms, and classified them
into three portfolios (high, medium and low level of technology), according to the industry
classification proposed by the OECD9. It is obvious that this classification does not
necessarily reflect the characteristics of the Spanish economy, as it was designed in an
attempt to capture a wide variety of factors across all the OECD countries, which on average
have a higher technological capacity than Spain. The third step was to assign firms to
portfolios according to the classification of industries proposed by the SSI of the INE.
Industries were grouped into high, medium and low technology level in view of the
percentage of innovative firms found by the SSI. Therefore, we included in the high
technology portfolio those industries in which more than 25% of the firms are innovative, in
the medium technology portfolio we included industries in which between 10% and 25% of
the firms are innovative, and in the low technology portfolio we included industries in which
less than 10% of the firms are innovative.
Additionally, using data from 1995 we classified all firms in the Spanish sample into
three portfolios (high, medium and low technology firms), based on the percentage of the
their turnover invested in R&D as shown in the survey of R&D carried out by the National
Institute of Statistics (INE)10. Firms spending more than 4% of their volume of sales on R&D
are classified as high tech, those which spend from 1% to 4% are classified as medium tech
and those which spend less than 1% are low technology firms. This classification criterion is
consistent with that used by the OECD.
8
We restricted our attention to this period, as it was not until 1990 that Spanish firms were first required by law to
submit their financial statements to an independent external audit.
9
In the latest classification done by the OECD (1995), Those sectors considered to be in the high level of
technology were: Aerospace, computers, electronics and communications, scientific instruments, and automobiles.
10
This analysis was carried out on the basis of a small sample of firms, as the National Institute of Statistics (INE)
19
In order to avoid any loss of information, we decided not to discard outlying
observations. To make sure our results were not affected by the bias that outliers might
introduce in our analysis, we computed the median market-to-book ratio for each portfolio
and based all the comparisons on its observed values.
Finally, to assess the relevance of accounting fundamentals for equity valuation in
R&D intensive firms, we regressed stock prices on book values and earnings before
extraordinary items and discontinuing operations using the data collected from the
pharmaceutical firms.
5.4.
Results
Table 1 presents the median values of the MB ratio for the different portfolios formed during the
period 1990-1996. Panel A shows the median values of the ratio for a group of industries in the
Madrid Stock Exchange.
Although our results must be interpreted with caution and should be validated by
further analyses, the following points are quite evident:
There is clearly a decreasing trend in the values of the median MB ratios in all the
industries considered except for the real estate and the chemical, textile and paper subsamples.
However, if we consider the period 1993-1996, the decrease in the value of the ratio is less
evident, except for the chemical industry. Therefore, it appears that the MB ratio diminishes
between 1990 and 1992 and stabilises thereafter. This could be the consequence of the recession
in the Spanish economy during the first years of the 1990’s. Taken together, our results indicate
that on average the market value of Spanish firms is more than twice their book value of equity,
even in the presence of a deep economic recession.
In our view the OECD classification of firms according to their level of technology
does not reflect the structure of the Spanish economy. Panel B in table 1 shows that firms
included in the high technology group have a higher median MB ratio than those in the low
technology class. However, the median value of the ratio for the firms in the medium
technology level is higher than that of the firms in the high-tech group. One would expect to
find a monotonic relationship between the values of the ratio and the level of technology,
which clearly does not exist when firms are classified according to the OECD criteria.
The results in panel C of table 1 provide a different picture. They seem to indicate that
the classification of industries resulting from the SSI reflects more accurately the
did not have the necessary information available.
20
characteristics of Spanish innovative firms. Although the ratio still shows a decreasing
pattern, there is a monotonic relationship between the median values for each portfolio and
the level of technology assumed by the survey for the different industries.
The median values of the MB ratio for the three portfolios formed according to the
percentage of the total turnover invested in R&D were 2.32 for the high technology firms,
1.20 for the medium tech level and 1.38 for firms with a lower technology level. Although the
firms with a lower technology level appear to have a greater MB ratio than those in the
medium portfolio, the difference is not significant. However, it is clear that firms in the high
technology portfolio do have a significantly higher median MB ratio. This provides support to
our hypothesis that the market values intangibles and, as a consequence, the MB ratio is
greater the greater the amount of intangible investments.
Table 2 shows the coefficient estimates in the regression of stock prices on book
values and earnings for the sample of Spanish firms listed in the Madrid stock exchange, that
were classified in the high technology level by the SSI.
Results indicate that earnings appear not to be taken into consideration by investors
when assessing the value of innovative firms. Conversely, the coefficient on the book value of
equity is always highly significant, what leads us to think that investors consider the book
value of shareholders’ equity as a good proxy for the liquidation value of these firms. The
coefficient on the book value of equity has a minimum value of 1.82 in 1995 and a maximum
value of 2.99 in 1992. Considering that 1992 was the worse year in the Spanish recession and
that the economy has improved thereafter, these results appear to be consistent with those of
previous studies that investigate the existence of a convex relationship between prices and
both, earnings and book values. These studies have shown that the coefficient on the book
value of equity is higher the worse the financial position of the firm, suggesting that book
values are a proxy for the value of the liquidation option that shareholders may exercise
should they expect persistent negative earnings. The results in panel A of table 2 show that
the slope on book values is higher in recession years (1990-93) than in the last three years
covered in the study.
Panel B in table 2 shows the coefficient estimates resulting from the analysis of the
world wide sample of pharmaceutical firms. In general, the book value of equity has a low
relevance, being the level of earnings the fundamental determinant of the value of these
companies. This clearly indicates that the book value in the balance sheet is missing a
fundamental part of the value of the firm: it appears that investors consider the current level of
21
(conservative) earnings11 as a good signal for future earnings. Thus, the market does not seem
to be myopic, that is, investors are is not misled by the absence of intangible investments from
the balance sheet (they just disregard the book value of equity) and identify earnings as the
fundamental determinant of the future value creation.
6. CONCLUDING REMARKS
Studies of the measurement of business innovation are based on two sources of data,
statistical surveys and financial accounting information, the analysis of both of which has
gone on in parallel, but without any joint effort. We believe it is necessary to merge the two as
the information provided by macroeconomic surveys could be complemented by aggregated
data obtained from companies’ financial statements.
Given the globalisation of business activity, it is essential to lay down a set of
standardised criteria for the measurement of innovation. Nationalist solutions have
traditionally been the first step, and attempts to harmonise criteria at the international level
have usually come afterwards. This is obviously not the most efficient course of action. Since
the measurement of innovation is still a field of study in its infancy, an international
consensus on fundamental methodological issues would result in substantial advances in our
knowledge on innovation and would lead to significant savings in time and resources.
Studies on innovation have limitations as a result of their lack of timeliness and the
degree of aggregation used to protect the secret nature of the reports provided by individual
firms. Nevertheless, this aggregation can also be beneficial, as it may provide a sound basis
for the identification of trends, key factors and explanatory variables. These can serve as
points of reference in the debate and to outline the criteria for data collection from the firms
on a regular basis.
Efficient decision making by managers, investors and the governmental bodies
requires timely and reliable information. Despite their limitations, financial statements appear
as the most timely and reliable source of information on the innovative activities of business
companies. Therefore, improving the amount and the quality of the information provided by
companies on their innovative activities in their annual accounts (information on intangibles)
currently appears as the major challenge for accounting standard setting bodies.
11
The high proportion of firms in the sample that are compelled to fully expense their R&D investments is likely to
result in a conservative average earnings figure and a conservative average book value of equity (see Abbody and
Lev, 1999).
22
The empirical evidence provided in this paper indicates that on average the Spanish
capital market values firms 100% in excess of their book value of equity. Our results also
indicate that intangible investments are relevant to investors, as the MB ratio appeared to be
greater the higher the level of technology. The analysis of a world-wide sample of
pharmaceutical companies revealed that their book value of equity does not account for a
significant part of their market value and, consequently, investors appear to consider their
current level of earnings as the fundamental determinant of their intrinsic value.
Given the importance of business innovation in a growing economy, governments
must formulate a comprehensive technological and scientific policy. This requires timely and
reliable information that must be obtained from both, macroeconomic data gathered by means
of surveys and aggregated microeconomic data obtained from companies’ financial
statements. A set of harmonised standards for the measurement of intangible investments
supported by the main international bodies (OECD, European Union, etc.) will result in the
availability of information useful for decision making in the knowledge-based economy.
The European Commission has recently recognised the need to produce harmonised
standards on intangibles, in a report about innovation policy (European Commission, 2000;
84-85). If knowledge is the main driver of innovation and economic growth, it becomes
essential to develop reliable measures thereof. Obviously, such measurements should be
comparable across companies, industries and countries in order to be useful for policy
purposes.
23
Figure 1
Overview of the divergence between the studies of innovation conducted using the
guidelines of the Oslo Manual and the financial information prepared by firms
Investments in Tangible Assets
not Related to Innovative Activities
Innovative
Activities
(The Oslo
Manual)
Investments in Tangible Assets
Related to Innovative Activities
Investments in Intangibles
Related to Innovative Activities
Investments in Tangible
Assets
(Financial-Accounting
Information)
Investments in Intangibles
(Financial-Accounting
Information)
Investments in Intangibles not
Related to Innovative Activities
24
Table 1
Median Market-to-Book ratios in the Spanish Stock Market
Panel A: Median ratios by industry
1990
MB
n
1991
MB
n
1992
MB
n
1993
MB
n
1994
MB
n
1995
MB
n
1996
MB
n
Pooled
MB
n
Food and Beverages
Construction
Building Materials
Engineering
Financial
Electronics
Energy
Chemical, Textile and Paper
Real Estate and other Services
Transportation
3,31
2,78
2,77
2,45
2,97
2,11
2,38
0,42
1,25
1,18
3,05
2,88
2,72
2,61
2,31
2,01
2,06
0,54
1,55
0,56
2,8
2,69
2,69
2,61
2,29
2,08
1,99
1,38
1,29
0,58
2,75
2,6
2,5
2,37
2,06
1,98
1,94
3,22
1,56
0,56
2,34
2,26
2,34
2,54
1,93
2,85
1,85
2,97
1,44
0,56
2,11
2,26
2,17
1,93
2,28
2,49
1,74
2,66
1,92
0,55
2,17
1,87
1,81
1,92
2,17
2,11
1,36
1,99
1,92
0,46
2,54 70
2,5 89
2,47 76
2,32 121
2,27 137
2,08 31
1,93 98
1,63 23
1,54 140
0,86 15
Global
2,44
9
11
10
18
15
5
14
4
19
3
111 2,31
10
13
11
18
20
5
14
4
20
2
120 2,26
10
13
11
18
20
5
14
4
20
2
120 2,11
10
13
11
18
21
5
14
3
21
2
120 2,11
10
13
11
17
21
4
14
3
20
2
118 2,15
10
13
11
17
20
4
14
3
20
2
118 1,79
10
13
11
15
20
3
14
2
20
2
115 2,13 823
Panel B: Portfolios formed according to the OECD (1995) classification of firms in High, Medium and Low levels of technology.
1990
MB n
1991
MB n
1992
MB n
1993
MB n
1994
MB n
1995
MB n
1996
MB n
Pooled
MB n
High Technology Level
1,99
17 1,98
17 2,01
17 1,84
16 1,82
15 1,62
15 1,82
12 1,91 109
Medium Technology Level
3,32
19 2,94
20 3,06
20 3,02
20 2,64
20 2,17
20 1,86
20 2,69 139
Low Technology Level
1,95
13 1,76
14 1,58
14 1,47
14 1,52
14 1,44
14 1,21
14 1,59
97
Panel C: Portfolios formed according to the Spanish Survey of Innovation.
1990
MB n
1991
MB n
1992
MB n
1993
MB n
1994
MB n
1995
MB n
1996
MB n
Pooled
MB n
High Technology Level
2,57
22 2,69
22 2,68
22 3,03
21 2,72
20 2,52
20 2,11
18 2,47 145
Medium Technology Level
2,27
30 2,22
32 2,21
32 2,14
32 2,11
32 1,69
32 1,46
31 2,04 221
Low Technology Level
2,17
22 2,01
22 1,99
22 1,81
22 1,85
22 1,74
22 1,36
22 1,91 154
25
Table 2
Regression Results
Pit = α + βBVit + γXit + eit
Panel A: Firms listed in the Madrid Stock Exchange classified in the in the high technology
level by the Spanish Survey of Innovation
α
β
γ
Adjusted R2
N
1990
-4.162
(-1.57)
2.589***
(20.19)
13.924***
(7.01)
0.883
22
1991
-3.615
(-1.04)
2.929***
(5.83)
5.155
(0.68)
0.856
22
1992
1.146
(0.13)
2.990***
(8.74)
2.568
(0.63)
0.882
22
1993
7.841
(0.29)
2.748***
(14.14)
3.521*
(2.03)
0.887
21
1994
7.975
(0.03)
2.027***
(5.99)
7.013*
(2.06)
0.891
20
1995
-1.102
(-0.53)
1.828***
(4.61)
6.094*
(2.04)
0.894
20
1996
-1.043
(-0.04)
1.964***
(3.59)
2.092
(0.58)
0.893
18
Panel B: International sample of Pharmaceuticals firms.
γ
Adjusted R2
α
β
1996
3.822**
(2.08)
0.530*
(1.76)
17.468***
(8.26)
0.901
185
1995
3.725
(1.20)
0.449
(1.07)
16.372***
(5.77)
0.829
191
1994
2.603
(1.30)
1.457***
(4.96)
7.861***
(5.05)
0.884
186
1993
4.821**
(2.13)
1.775***
(3.79)
6.120**
(2.53)
0.797
176
1992
6.992***
(3.10)
0.747
(1.57)
11.659***
(3.39)
0.753
158
1991
1.156***
(5.49)
-0.224
(-0.60)
18.151***
(4.71)
0.777
144
1990
9.594***
(4.38)
-0.178
(-0.47)
13.575***
(5.23)
0.777
139
N
(t-statistics in parentheses: White Heteroskedasticity-Consistent Standard Errors & Covariance)
***
**
*
Significant at the 0,1 level.
Significant at the 0,05 level.
Significant at the 0,01 level.
26
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