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The effect of Intangible Assets on the Firm’s Financial Performance and Mediating Role of the Cost Stickiness in Tehran Stock Exchange

Mudīrriyat-i dārāyī va ta̓mīn-i mālī, 2021-06, Vol.9 (2), p.47-76 [Peer Reviewed Journal]

EISSN: 2383-1189 ;DOI: 10.22108/amf.2021.118666.1453

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  • Title:
    The effect of Intangible Assets on the Firm’s Financial Performance and Mediating Role of the Cost Stickiness in Tehran Stock Exchange
  • Author: Mohammad Namazi ; Yasser Shakeri
  • Subjects: cost stickiness ; firm performance ; intangible assets ; structural equation modeling
  • Is Part Of: Mudīrriyat-i dārāyī va ta̓mīn-i mālī, 2021-06, Vol.9 (2), p.47-76
  • Description: AbstractThe purpose of this study is to investigate the mediating role of the cost stickiness in the relationship between intangible assets and the financial performance of companies listed on the Tehran Stock Exchange. One hundred and eighty four (184)  companies in the period from 2007 to 2016 are analyzed through the SEM-PLS method. The research models and hypotheses are first implemented and reviewed by year and once in general by industry. Finally, to evaluate the significance of the effect of the mediating variable, the Sobel test is used. In order to determine the strength of its effect, we applied VAF statistics. While our findings confirm that intangible assets have a positive effect on the financial performance of companies only in 2010, this relationship is significant in almost all industries, in which the automotive, parts, and machinery industry witnesses the most influential effect, compared to other industries. In addition,  costs stickiness as a mediating variable in the relationship between intangible assets and financial performance is not significant in any of the years. However, the mediating effect of cost stickiness in the whole period by industry is significant and 59.83% of the effect of intangible assets on companies' financial performance is explained indirectly by the cost stickiness. Finally, the effect of cost stickiness on the financial performance of companies is significant in all industries except for the Metallic Mineral industry.Keywords: Cost stickiness, Firm performance, Intangible assets, Structural equation modeling. Introduction:In a knowledge-based economy, intangible assets play an important role in improving the financial performance and success of a company in achieving its goals, as intangible assets are the source of wealth and growth (Lev, 2001). However, there is no comprehensive accepted model that can yield the concept of measuring intangible assets and their impact on the company's financial operations and comparing them across different industries (Chen, Lu, & Sougiannis, 2012). On the other hand, in the recent financial literature, the issue of "cost stickiness" has recently been raised. The phenomenon of cost stickiness implies that the increase in costs for a specific increase in the level of activity is greater than its decrease for the same level of decrease in the activity (Namazi, & Davanipour, 2010; Khajavi, Ghadiriyan, & Sadeghzadeh, 2017). Veniriz, Naum and Valizmaz (2015) indicate that resource allocation decisions regarding the development of intangible assets lead to cost stickiness. Thus, the new financial literature shows that intangible assets affect cost stickiness. Also, the phenomenon of cost stickiness has a significant impact on the performance of companies (Anderson, Banker, & Janakiraman, 2003; Calleja, Steliaros, & Thomas, 2006). Therefore, the hypothesis of the present study, based on the literature on mediator variables (Baron, & Kenny, 1986), is that the relationship between intangible assets and corporate financial performance is an indirect relationship in which cost stickiness plays a mediating role. This relationship is studied for different industries in Tehran Stock Exchange. The importance of this research is that the present study provides clear empirical evidence in the area of cost stickiness, value of intangible assets and its relationship with the financial performance of Tehran Stock Exchange companies. Moreover, considering the stickiness of costs and intangible assets, this research provides an opportunity to better understand the behavior of costs.Method and Data:One hundred and eighty four (184) companies in the period from 2007 to 2016 (1840 years-company) are analyzed through structural equations, using the partial least squares method. The research models and hypotheses are first implemented and reviewed by year and once in general by industry. Finally, to evaluate the significance of the effect of the mediating variable, the Sobel test is used, and to determine the strength of its effect, VAF statistics is used. The main dependent variable in the present study includes five groups of financial ratios (liquidity, profitability, performance, return and market ratios).  Intangible assets are the main independent variables of the present study. Following the mentioned theoretical foundations and background, intangible assets can be generally divided into two groups: registered intangible assets and unregistered intangible assets, which are valued by using the ratio of intangible items of ratio (Q-Tobin) and size indicators (economic value added and market surplus value to book value) (Namazi, & Mousavinejad, 2016). In the mediator model, it is assumed that the independent variable first affects the mediating variable and then the mediating variable affects the dependent variable (Baron, & Kenny, 1986). Mediating variables were divided into four categories: cost of goods sold, general, administrative and sales costs, operating costs, the size of the stickiness, and the strength of the stickiness. Findings:Pattern fitting is performed in the following three general sections: a) Measurement pattern fitting (including reliability, convergent validity, and divergent validity); B) Structural part fit (including consideration of significance coefficients, determination coefficient, and predictive power of the model); and c) Overall fit of the model (including two parts of general measurement fit and structural part, the general GOF criterion indicates the suitability of the whole model). Table 6 shows the statistics of structural and general part of the model. Table (6) Statistics of Structural and General Part of the Model      Period                  Statistics2007200820092010201120122013201420152016R2 (67/0<)272/0156/0091/0237/0275/0104/0437/0625/0084/0145/0Q2 (35/0<)213/0209/0192/0227/0173/0144/0104/005/066/0104/0GOF (36/0<)402/0411/0416/0426/0408/0415/0432/0416/0433/0408/0 The value of the Z test statistic obtained from the Sobel test is equal to 2.813812. Thus, it can be concluded that at a 95% confidence level, the mediating effect of the cost stickiness variable on the relationship between intangible assets and financial performance in Tehran Stock Exchange companies is significant. Besides, the value of the VAF statistic is equal to 0.59834, which means that 59.83% of the effect of total intangible assets on the financial performance of companies can be attributed to cost stickiness. Conclusion and discussion: The impact of intangible assets on the financial performance of companies can be direct or indirect. The direct effect depends on the type of analysis. The findings of this study imply that if the analysis is done annually, this effect is significant only in 2010. Meanwhile, if this effect is done at the level of different industries of the stock market, it is significant for almost all industries. In the indirect effect, when cost stickiness is considered as a mediating variable, the relationship between intangible assets and companies' financial performance is not significant in any of the years under review. But at the industry level, it is significant and 59.83% of the effect of total intangible assets on the financial performance of companies is explained by the variable of cost stickiness. Finally, the effect of cost stickiness on the financial performance of companies in almost all industries is significant.
  • Publisher: University of Isfahan
  • Language: Persian
  • Identifier: EISSN: 2383-1189
    DOI: 10.22108/amf.2021.118666.1453
  • Source: DOAJ Directory of Open Access Journals
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