Definition and measurement of variables
| Definition of variables | Measurement |
|---|---|
| Opportunity | We measure opportunity based on future sales growth. Future sales growth is measured by the geometric mean of the last three years’ sales growth. We denote it by Sales_Growth |
| Performance | We measure performance based on two classic but popular performance measures – return on assets (ROA) and return on equity (ROE) |
| Business model | A particular business model of a firm contributes to the value creation. From this viewpoint, we assess the business model based on the two value drivers – total sales and economic value added (EVA). We measure these value drivers by the natural logarithm of sales and EVA. Since these value drivers considerably vary across small and large firms, we take natural logarithms to normalize the data. This normalization also allows us to control the heterogeneity across the firms |
| Digital technology | One way to measure digital technology is to use the number of digital technologies used by the firms. However, most of the firms usually do not disclose the type and the number of technologies to protect their competitive advantage. Hence, a popular way to measure digital technologies is to use proxy variables recommended by Sheng and Mykytyn (2002). They recommend using investment in information technology by the firms in each year. We refer to this as Ln (Investment_IT) |
| Age | Age of the firm. We measure this as the total length of operation of a firm from the date of incorporation. We also normalize this variable to control the variability across the firms |
| Control variables | |
| OPEX | Total operating expenditures of the firms. We normalize this variable by using natural logarithm |
| FOWN | Percentage of foreign ownership of the total stocks being traded in the stock exchange |
| GAFF | Group affiliation. It is a dummy variable taking 1 if a firm lies in a corporate group (parent–subsidiary relationship) |
| Definition of variables | Measurement |
|---|---|
| Opportunity | We measure opportunity based on future sales growth. Future sales growth is measured by the geometric mean of the last three years’ sales growth. We denote it by |
| Performance | We measure performance based on two classic but popular performance measures – return on assets ( |
| Business model | A particular business model of a firm contributes to the value creation. From this viewpoint, we assess the business model based on the two value drivers – total sales and economic value added (EVA). We measure these value drivers by the natural logarithm of sales and EVA. Since these value drivers considerably vary across small and large firms, we take natural logarithms to normalize the data. This normalization also allows us to control the heterogeneity across the firms |
| Digital technology | One way to measure digital technology is to use the number of digital technologies used by the firms. However, most of the firms usually do not disclose the type and the number of technologies to protect their competitive advantage. Hence, a popular way to measure digital technologies is to use proxy variables recommended by |
| Age | Age of the firm. We measure this as the total length of operation of a firm from the date of incorporation. We also normalize this variable to control the variability across the firms |
| OPEX | Total operating expenditures of the firms. We normalize this variable by using natural logarithm |
| FOWN | Percentage of foreign ownership of the total stocks being traded in the stock exchange |
| GAFF | Group affiliation. It is a dummy variable taking 1 if a firm lies in a corporate group (parent–subsidiary relationship) |
Source(s): Authors’ own creation
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