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Intangible assets, absorbing knowledge and its impact on firm performance: theory, measurement and policy implications

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  • Richard Harris
  • John Moffat

Abstract

The use of intangible assets (IA) is widely recognised as a key driver of enterprise performance. A concept that is closely linked to IA is absorptive capacity, which is defined as the ability to exploit knowledge that is embodied in IA. The main objective of this paper is to explore what is meant by absorptive capacity, before examining the empirical relationship between absorptive capacity and various dimensions of firm performance. The latter is not straightforward because there is no agreed approach to measuring absorptive capacity. The approach taken here is to use data on whether firms sourced knowledge or collaborated externally from the UK Community Innovation Survey. This allows us to show that there is a clear and important link between absorptive capacity and various dimensions of firm performance. In this paper, we aim to contribute to the special issue by focusing on the role mobilising knowledge can play in improving the performance of firms in the private sector, which has a particular resonance in these difficult economic times. Our central message is that for firms to perform better in hard times, they need to mobilise their absorptive capacity. Government must therefore consider whether they should focus their efforts on helping firms directly to increase their own absorptive capacity or on improving the flow of (local) knowledge through supporting networks. Our view is that, while maintaining existing policies that aim to increase connections and encourage collaborations between firms, there should be a greater emphasis on the firm because evidence shows that unless firms have sufficient absorptive capacity, they will not be able to fully internalise the benefits of any knowledge spillovers, no matter how large such spillovers may potentially be.

Suggested Citation

  • Richard Harris & John Moffat, 2013. "Intangible assets, absorbing knowledge and its impact on firm performance: theory, measurement and policy implications," Contemporary Social Science, Taylor & Francis Journals, vol. 8(3), pages 346-361, November.
  • Handle: RePEc:taf:rsocxx:v:8:y:2013:i:3:p:346-361
    DOI: 10.1080/21582041.2012.751498
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    References listed on IDEAS

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    1. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, September.
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    Cited by:

    1. Muhammad Anwar & Sher Zaman Khan & Najib Ullah Khan, 2018. "Intellectual Capital, Entrepreneurial Strategy and New Ventures Performance: Mediating Role of Competitive Advantage," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(1), pages 63-94, March.
    2. Crescenzi, Riccardo & Gagliardi, Luisa, 2018. "The innovative performance of firms in heterogeneous environments: The interplay between external knowledge and internal absorptive capacities," Research Policy, Elsevier, vol. 47(4), pages 782-795.
    3. Marc Audi & Amjad Ali & Razan Al-Masri, 2022. "Determinants of Advancement in Information Communication Technologies and its Prospect under the role of Aggregate and Disaggregate Globalization," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(2), pages 191-215, June.
    4. Richard Harris & Trinh Le, 2019. "Absorptive capacity in New Zealand firms: Measurement and importance," Science and Public Policy, Oxford University Press, vol. 46(2), pages 290-309.
    5. Carita Eklund & Kristof van Criekingen, 2022. "Fast as a gazelle – young firms gaining from educational diversity," Industry and Innovation, Taylor & Francis Journals, vol. 29(8), pages 927-947, September.
    6. Stjepan Srhoj & Bruno Skrinjaric & Sonja Radas & Janette Walde, 2019. "Closing the Finance Gap by Nudging: Impact Assessment of Public Grants for Women Entrepreneurs," Working Papers 1902, The Institute of Economics, Zagreb.
    7. Kotsopoulos, Dimosthenis & Karagianaki, Angeliki & Baloutsos, Stratos, 2022. "The effect of human capital, innovation capacity, and Covid-19 crisis on Knowledge-Intensive Enterprises’ growth within a VC-driven innovation ecosystem," Journal of Business Research, Elsevier, vol. 139(C), pages 1177-1191.
    8. Ascani, Andrea & Gagliardi, Luisa, 2020. "Asymmetric spillover effects from MNE investment," Journal of World Business, Elsevier, vol. 55(6).

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