Dynamic Construction of Intangible Capital and Its Performance Implications: Evidence from Technology-Based SMEs

In this study, we illuminate the performance implications of capital allocation investments for constructing intangible capital. In particular, given that intangible capital is drawn from R&D and advertising investments, we claim that the configuration (or reconfiguration) of the investments for intangible capital can affect firm performance. The idea is examined in the setting of technology-based SMEs (Small- and Medium-sized Enterprises). With 1,127 SMEs in high-tech industries from S&P’s Compustat database, we identify four different behavioral patterns for the construction of intangible capital, and examine that these patterns can affect firm performance. The estimation results reveal that focus alternation toward technology is positively related to firm performance, which is captured by Tobin’s q. Based on the results, theoretical and practical implications are discussed.