Investors Assessment of the Knowledge Capital within Global Firms

• In Event: Concurrent Session 1.4: Analysts and Other Market Intermediaries

Abstract

This study deals with how investment bankers make investments choices in international stocks. We use a decision making model that allows us to distinguish between investors’ use of explorative and exploitative learning strategies when they are presented with both traditional financial as well as non-traditional finical knowledge. The study is a comparative study of investment bankers from Sweden and the United States. Both groups were asked to select among stocks within an international portfolio of stocks based on traditional financial and knowledge asset performance information. The findings indicated that while investment bankers do utilize new knowledge performance measures in their investment decision making, they are not able to fully utilize this type of information in their evaluations of international stocks. Our study revealed that investments bankers’ exploration did not go beyond the cognitive acquisition of information contained in new knowledge performance measures, but they were unable to fully exploit this new knowledge. These findings were independent of the country of origin of the investment bankers. In order for new knowledge performance information to impact investors’ decisions it must be processed and integrated into analysts’ repertoire of analytical tools that they use in assessing the attractiveness of different stocks. Our findings may assist knowledge intensive MNEs in their endeavor ensure a fair evaluation of stocks based on measures that go beyond traditional financial information. Investment bankers have an important role in influencing stock market evaluation of MNEs and in allowing them to raise new capital through various means, e.g., share emissions. Based on the results of our study we suggest how knowledge intensive MNEs may better convey the value of their company assets to professional investors.

Authors

• Waymond Rodgers, University of Texas at El Paso and University of Hull

• Thomas J. Housel, Naval Postgraduate School

• Kirsten Foss, Norwegian School of Business