Harvest Now or Invest Further — The Dilemma Reexamined

43 Pages Posted: 14 Jan 2017 Last revised: 25 Mar 2020

See all articles by Ashish Sood

Ashish Sood

University of California Riverside

Anup Srivastava

University of Calgary - Haskayne School of Business

Birendra K. Mishra

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Date Written: January 7, 2017

Abstract

Firms regularly face a dilemma — whether to extract profits from the past investments or to invest further in value creation. Prior research calls this tradeoff strategic emphasis, and examines it by subtracting R&D expenses from advertising expenses. This investigation appears incomplete for three reasons. First, more than 75% of listed firms report no R&D and advertising expenses. Second, R&D expenses are often strategically underreported. And third, an increasing proportion of resources are invested on customer relations, human resource capabilities, and organizational capital. We address these limitations by more comprehensive identification of value appropriating and creating activities from SG&A expenses. We then propose a new measure of organizational emphasis to complement strategic emphasis. We find that unexpected shifts from value creation to value appropriation decreases a firm’s market value, contrary to prior research finding. Yet, firms are better off harvesting value in periods of unusually good performance. The stock market’s response to shifts in firm strategies differs based on the firm’s economic circumstance and investment opportunity set.

Keywords: Strategic emphasis, intangible investments, R&D, advertising, organizational capital, stock returns

JEL Classification: M31; M37; M41

Suggested Citation

Sood, Ashish and Srivastava, Anup and Mishra, Birendra K., Harvest Now or Invest Further — The Dilemma Reexamined (January 7, 2017). 2017 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2899014

Ashish Sood

University of California Riverside ( email )

United States
6782059931 (Phone)

HOME PAGE: http://www.ashishsood.net

Anup Srivastava (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Birendra K. Mishra

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States
951-827-7707 (Phone)
951-827-3970 (Fax)

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