Value Creation in High-Tech: The Case of the Telecommunication Sector

Abstract:     
Innovation makes investors dream about the future performances of the firm when the expected profitability is greater then the cost of capital. In this case, the company creates value and satisfies its shareholders. The valuation of an innovative project should indeed increase with the value created. In order to examine this hypothesis we focused on the telecommunications sector because of the inverted "v" curve it went through in the past four years in terms of valuation. After defining the methodology, we analyse first the key structural financial items that had an impact on value creation, based on the year 2001 accounts. Secondly, we examine the impact of value creation on the financial performances of the firm (from 1998 to 2002). Our results show that the assets and the structure of the capital have a strong impact on the value creation regarding the nature of the redeployment opportunities. We observed also that value creation has a strong impact on companies' performances but surprisingly only when the market is collapsing.

Number of Pages in PDF File: 16

Keywords: EVA, MVA, Value creation, Financial structure, Stock return, Intangible asset, Bearish market, Bullish market, Telecommunication

JEL Classification: G30, G12, C10

Accepted Paper Series