The overall objective of this project is to analyze in an international context the nature and value relevance of business know-how in a knowledge society. During recent years the demand for more detailed information about a firm’s relationship with the society has increased for several reasons. In the past, value creation of a firm has been based mainly on the stable past and present economic performance. Nowadays the value creation of a firm is significantly more oriented toward the future. Also firms’ business concepts are increasingly more diverse and sophisticated. Thus value creating processes can be very innovative, specialized and sophisticated. Telecommunication, biotechnology, and software producers, among other growth companies, invest heavily in intangibles such as R&D, customer-base creation, franchise, and brand development. These industries have a significant meaning e.g. for the Finnish economy. This type of information can be very difficult to channel to stakeholders without causing misunderstandings. All this is a huge challenge for firm valuation: not only financial but also non-financial information is needed. A firm’s stakeholders are marked by rather divergent interests nowadays meaning they have diverse information needs. Recent studies and reports indicate that firm’s stakeholders do not get all the information they need from financial statements. Furthermore, certain owners may be impatient causing managers to overweight short-term in their decision making in the expense of long run stable development. A modern firm can translate this specialized demand for economic, social and ecological capabilities and their transparent and reliable communication into a competitive advantage. Their successful integration can be a part of its core business know-how.
This research project provides more understanding of the nature and value relevance of business know-how (economic, social and ecological capabilities and their reporting) in an international context. The whole research project consists of seven subprojects: 1) determinants for the reporting of non-financial information, 2) determinants of international differences in regulation of non-financial information, 3) valuation impact of reporting social and ecological performance in various international institutional regimes, 4) ownership structure/duration and managers’ planning horizon, 5) profitability of investment strategies based on non-financial information, 6) usefulness of non-financial information for financial analysts, and 7) usefulness of non-financial information on lending decisions. Subprojects one and two deal with the dissemination of non-financial information. Subprojects three through seven deal with the use of non-financial information.
Key words: value relevance, non-financial indicators, firm disclosures, social responsibility, social reporting, ecological reporting, corporate governance