SWITCHING TO INNOVATIVE STRATEGY THE PHANTOM MENACE Angel

Motivation Intuition one can observe different strategies of companies on the same market some

Motivation In the paper “Status quo vs new strategy in intangibles” we have developed

Research Questions Do companies switch to innovative strategy when performance of the “status quo”

Research strategy 1 st stage identify companies that switch to innovative strategy investment in

Methodology Identification of switching if intangible assets increase: any increase, 25% increase, 50% increase,

Data 1000 observed from 2004 till 2014 listed Russian companies corporate performance, items of

Switching by years 0, 3 0, 25 0, 2 0, 15 0, 1 0,

Results: probability of switching (1) (2) (3) (4) (5) VARIABLES switch 25 switch 50

Results: moderation effect of switching to innovative strategy in crisis

VARIABLES Lagged intangible assets Results: moderation effect of switching Crisis Book Value Moderation effect

VARIABLES Lagged intangible assets Book Value Crisis Moderation of switching (25%) Moderation of switching

Intermediate results There are different effects on performance considering the level of switching The

Results: threshold in the switching strategy VARIABLES Lagged intangible assets Book value Switching Moderation

Findings External shocks influence more companies decision to change their strategic behavior Still, internal

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SWITCHING TO INNOVATIVE STRATEGY: THE PHANTOM MENACE Angel Barajas Elena Shakina

Motivation Intuition one can observe different strategies of companies on the same market some companies introduce innovations others follow innovative leaders under turbulent conditions companies might change their behavior Previous studies Cincera et al. , 2011 European project - R&D in crisis Archibugia et al. , 2012 Economic crisis and innovation: Is destruction prevailing over accumulation? Zouaghi et al. , 2015 Has the global financial crisis had different effects on innovation performance in the agri-food sector by comparison to the rest of the economy?

Motivation In the paper “Status quo vs new strategy in intangibles” we have developed a theoretical model found out that a company decides to switch to intangible-intensive strategy under certain conditions on the next step is interesting to learn about real patterns of companies' strategic behavior reveal switching to innovative strategy formulated a golden rule – optimal investment when maximum value is reached learn about drivers of this switching and its consequences

Research Questions Do companies switch to innovative strategy when performance of the “status quo” strategy is high? Do companies switch in favorable environment – stable economic conditions? Is switching to innovative strategy reasonable in crisis?

Research strategy 1 st stage identify companies that switch to innovative strategy investment in R&D resulted in IA increase 2 nd stage find out factors that drive companies to switch (increase probability of switching) factors related to previous performance examine corporate performance after switching whether new innovative strategy brings greater return on average 3 rd stage economic conditions: crisis/prosperity whether this effect is sensitive to the time chosen to switch

Methodology Identification of switching if intangible assets increase: any increase, 25% increase, 50% increase, 75% increase, doubling if a company invested in R&D in 1 or 2 years before Estimation of the probability to switch yit- switching to innovative strategy Xit-vector of factors: profit from the “status quo” strategy, crisis, size effect Estimation of the moderation effects of switching to innovative strategy yit- performance indicator xit- intangible assets in previous year zit-dummy variable: switching tc-dummy variable: crisis 2008 -2009

Data 1000 observed from 2004 till 2014 listed Russian companies corporate performance, items of the balance sheet, intangible resources financial reports, annual reports, crawling of corporate webpages and sources of analytical agencies

Switching by years 0, 3 0, 25 0, 2 0, 15 0, 1 0, 05 0 2006 2007 switch 2008 2009 switch 25 2010 switch 50 2011 switch 75 2012 2013 switch 100 2014

Results: probability of switching (1) (2) (3) (4) (5) VARIABLES switch 25 switch 50 switch 75 switch 100 Lagged EVA 0. 000332 6. 71 e-05 -0. 000148 7. 37 e-05 7. 35 e-05 (0. 000277) (0. 000250) (0. 000268) (0. 000584) (0. 000592) -5. 39 e-05 8. 69 e-05 9. 99 e-05 0. 000117 0. 000124 (5. 77 e-05) (6. 20 e-05) (6. 82 e-05) (8. 59 e-05) (8. 92 e-05) -3. 675*** -3. 603*** -3. 436*** -3. 993*** -3. 912*** (0. 587) (0. 714) (0. 713) (1. 005) 2, 274 1, 583 1, 451 1, 333 1, 239 Book value Crisis 2008 -2009 Observations

Results: moderation effect of switching to innovative strategy in crisis

VARIABLES Lagged intangible assets Results: moderation effect of switching Crisis Book Value Moderation effect of switching (25%) Moderation effect of switching in crisis (25%) Moderation effect of switching (50%) (1) EVA (2) EVA (3) EVA (4) EVA (5) EVA 0. 193*** (0. 0371) -1. 224 (6. 300) 0. 0460*** (0. 00166) 1. 234*** (0. 187) -6. 261*** (0. 353) 0. 293*** (0. 0366) -2. 567 (6. 318) 0. 0476*** (0. 00165) 0. 259*** (0. 0362) -5. 179 (6. 253) 0. 0558*** (0. 00163) 0. 257*** (0. 0361) -4. 765 (6. 243) 0. 0561*** (0. 00163) -0. 0552 (0. 0369) -3. 521 (6. 068) 0. 0354*** (0. 00166) 3. 245*** (0. 219) -5. 218*** (0. 392) Moderation effect of switching in crisis (50%) Moderation effect of switching (75%) -38. 83*** (1. 878) Moderation effect of switching (100%) -41. 00*** (1. 932) Moderation effect of switching in crisis Constant Observations R-squared -16. 60*** (3. 120) -19. 66*** (3. 118) -22. 20*** (3. 085) 8, 141 0. 183 0. 179 0. 195 -22. 63*** (3. 081) 2. 160*** (0. 0734) -1. 765*** (0. 201) -10. 97*** (3. 017) Standard 8, 141 errors in parentheses 8, 141 *** p<0. 01, ** p<0. 05, * p<0. 198 0. 243

VARIABLES Lagged intangible assets Book Value Crisis Moderation of switching (25%) Moderation of switching in crisis (25%) (1) EBIT (2) EBIT (3) EBIT (4) EBIT (5) EBIT 0. 426*** (0. 0417) 0. 112*** (0. 00187) -6. 640 (6. 887) 1. 220*** (0. 211) -9. 653*** (0. 399) 0. 585*** (0. 0416) 0. 116*** (0. 00188) -8. 113 (6. 978) 0. 557*** (0. 0414) 0. 125*** (0. 00187) -11. 78* (6. 942) 0. 555*** (0. 0413) 0. 126*** (0. 00187) -11. 20 (6. 934) 0. 172*** (0. 0422) 0. 100*** (0. 00190) -9. 160 (6. 736) Results: moderation effect of switching 3. 416*** (0. 250) -8. 657*** (0. 446) Moderation of switching (50%) Moderation of switching in crisis (50%) -47. 05*** (2. 135) 23. 03** (8. 977) Moderation of switching (75%) Moderation of switching in crisis (75%) -49. 67*** (2. 215) 29. 16*** (9. 025) Moderation of switching (100%) Moderation of switching in crisis (100%) 18. 09*** (3. 376) 12. 75*** (3. 410) 9. 997*** (3. 391) 9. 304*** (3. 388) 2. 514*** (0. 0841) -3. 014*** (0. 230) 23. 34*** (3. 315) 8, 749 8, 749 0. 439 0. 424 0. 430 0. 431 0. 463 Moderation of switching in crisis Constant Observations R-squared

Intermediate results There are different effects on performance considering the level of switching The interaction effect of switching: any change and at 25 and 50% is positive and significant At 75 and 100% is negative and significant The interaction effect of switching in crisis: any change and at 25 and 50% is NEGATIVE and significant At 75 and 100% is POSITIVE and significant (omitted for EVA) There is a change in the effect of the level of switching on performance.

Results: threshold in the switching strategy VARIABLES Lagged intangible assets Book value Switching Moderation effect of intangible assets Square of the moderation effect of intangible assets (1) EVA (2) EBIT (3) EVA (4) EBIT 0. 247*** (0. 0360) 0. 0373*** (0. 00174) 0. 000582 (0. 00715) -8. 658*** 0. 551*** (0. 0419) 0. 109*** (0. 00203) 0. 000840 (0. 00490) -8. 991*** 0. 124*** (0. 0365) 0. 0290*** (0. 00176) 0. 000457 (0. 00698) -6. 372*** 0. 374*** (0. 0417) 0. 0961*** (0. 00202) 0. 000504 (0. 00471) -5. 545*** (0. 567) 0. 0242*** (0. 660) 0. 0228*** (0. 576) 0. 0227*** (0. 661) 0. 0207*** (0. 00115) (0. 00134) (0. 00118) -18. 31*** (0. 00135) -25. 59*** (2. 337) 0. 0248*** (0. 00490) 28. 71*** (3. 035) 8, 749 0. 461 Moderation effect of intangible assets in crisis Square of the moderation effect of intangible assets in crisis Constant Observations R-squared -10. 64*** (2. 779) 18. 21*** (3. 117) (2. 102) 0. 0197*** (0. 00440) -3. 222 (2. 749) 8, 141 0. 206 8, 749 0. 417 8, 141 0. 244

Findings External shocks influence more companies decision to change their strategic behavior Still, internal factors are relevant to there is a minimum required level provide sufficient level of return of investment in innovations from the innovative strategy (is coherent with theoretical findings set by Shakina et al, 2016) in crisis companies have to invest even more to succeed with innovative strategy