“The role of knowledge assets and corporate social responsibility in creating firm value”

The purpose of this paper is to investigate how knowledge assets and corporate social responsibility jointly influence the market value of a firm. In the contemporary knowledge-driven economy, where competitive advantage is based on intangible and intellectual capital, this paper emphasizes the strategic significance of knowledge assets, open innovation, and sustainable development practices in creating and maximizing market value. By employing multiple regression analysis on panel data for ten financial years, the study examines the optimal composition of knowledge assets and the impact of CSR initiatives on firm value. Key findings highlight a crucial threshold leading to the peak of market value, approximately when knowledge assets account for about 36% of a firm’s total non-current assets. Further, this study demonstrates that maintaining a balance between internally developed knowledge assets and external acquisitions significantly enhances value, correlating with the cultivation of a capital-ization ability. Finally, this paper shows that corporate social responsibility emerges as a substantial driver of generating firm value, suggesting that integrating these practices into corporate strategic decisions not only aligns with ethical goals but also enhances market valuation. The insights from this study offer valuable perspectives for both academic researchers and industry professionals, advocating for a well-balanced approach to corporate asset management and underscoring the strategic importance of incorporating corporate social responsibility.


INTRODUCTION
In the current landscape of knowledge-driven economy, the essence of competitive advantage extends beyond operational efficiencies, pivoting crucially on the strategic management of intellectual capital and intangible assets (Katona, 2021;Wang et al., 2022), as well as stakeholder management.This evolving dynamic has propelled investments in intangible assets as a critical strategic imperative, underpinning firm competitiveness (Roth et al., 2023).The extant literature establishes a notable contribution of knowledge assets to firm performance, highlighting their role in sharpening a firm's competitive edge (Denicolai et al., 2015;Dancaková et al., 2022;Uddin et al., 2022).Further, this contribution is more intense when there is a propel balance with other complementary assets.In attempting to create knowledge assets, firms may focus on internal development of such assets or may choose to acquire knowledge assets via direct acquisitions or business combinations.
Simultaneously, the realms of corporate social responsibility (CSR) and sustainability have gained heightened importance, transcending their traditional perception as ethical obligations to become integral elements of developing a strategic competitive advantage (Al-Dhamari et al., 2022).However, despite the recognition of knowledge assets and corporate social responsibility as drivers of firm value, an outstanding gap in the literature is appeared.To date, there is no evidence of empirical research examining the effects of corporate social responsibility and knowledge assets on market value creation.As a result, this gap led to a scientific problem.It is unknown how knowledge assets and corporate social responsibility jointly affect a firm's market value.In addition, an important aspect that remains unexplored is the optimal balance of knowledge assets and their source of development that maximizes market value.

LITERATURE REVIEW AND HYPOTHESES
The knowledge-based view (KBV) of firms posits that intangible resources are pivotal in today's dynamic business milieu, dictating competitive advantage through the strategic application and synchronization of knowledge across organizational boundaries.Initially, academic focus primarily centered on Research and Development (R&D) investments as indicators of a firm's innovation and absorptive capacities (Ebers & Maurer, 2014;Cheng & Shiu, 2020).However, the shift to prioritizing intangible assets reflects their embodiment of explicit knowledge, an aspect crucial for firm valuation, as delineated in financial reports (Katona, 2021).
Based on the international accounting standards, (IAS), any entity must meet the following characteristics to be considered as an intangible asset.First, it must be identifiable and separable from its goodwill.Second, the company must own the ownership and the control of those entities, and third, it must have the potential to generate future economic benefits for the firm.Despite the rich literature, there remains a gap in understanding the combined influence of knowledge assets and CSR on firm market value.This study aims to fill this gap through a dual-focused examination: determining the optimal balance of knowledge assets for peak market value and assessing the cumulative impact of CSR and knowledge assets on firm value.
Therefore, this paper aims to examine the joint effect of knowledge assets and corporate social responsibility on a firm's value.To achieve this, the following hypotheses are formulated: H1: Knowledge assets have a non-linear relationship with a corporation's market value, indicating a potential threshold effect.
H2: A similar non-linear relationship exists between outsourced knowledge assets and market value, suggesting possible drawbacks of over-reliance on external acquisitions.
H3: CSR positively influences a corporation's market value, affirming its role in today's stakeholder-oriented business environment.

METHOD
Anchoring this investigation is a panel data multiple regression analysis, a method chosen for its robustness in handling longitudinal data and its capacity to reveal trends and patterns over time.This approach stands on the pillars of empirical rigor and analytical precision, with a particular emphasis on accounting indicators as proxies for the model variables.
Accounting indicators are preferred due to their objective nature and reliability.Unlike survey tools susceptible to subjective biases, these indicators offer a tangible reflection of a firm's knowledge value.This approach is supported by the work of scholars such as Berchicci (2013)  • CSR Reporting: Only those corporations that had an immaculate track record of ESG reporting for a fiscal year and had secured an aggregate score from Revinitiv, reflective of their CSR endeavors, found a place in the sample.
• Explicit Mention of Knowledge Assets: The focus tightened around corporations that categorically showcased their knowledge assets, distinct from the larger intangible assets umbrella.The clarity in demarcation ensured that this study remained unswervingly aligned with its objectives.
• Clarity in Knowledge Assets Origin: The delineation between internally nurtured and externally acquired knowledge assets was paramount.Only those annual reports that shed light on the origins of their intangibles were incorporated.
• Consistent Financial Year Endings: To avoid discrepancies that might arise due to varying reporting timelines, only corporations wrapping up their financial year by December were selected.
A rigorous adherence to the above criteria culminated in a distilled sample of 93 corporations, spanning multiple sectors, yielding 572 observations, testament to the depth and breadth of this study's dataset.
Central to this study is the meticulous quantification of the variables, with a particular emphasis on a corporation's market value.In capturing this crucial metric, the study employs the Tobin's Q ratio, a well-regarded market-centric metric.Tobin's Q transcends mere numerical valuation; it is a forward-looking measure that encapsulates market sentiments and anticipates future growth prospects.Its relevance in this context lies in its ability to reflect not only the current market valuation of a company but also its potential for future growth and profitability, making it an ideal tool for assessing the impact of knowledge assets and CSR on firm value.
The computation of Tobin's Q follows the methodology established by Chung and Pruitt (1994) and further refined by Lee and Makhija (2009).This approach involves a nuanced calculation that balances market valuation with the replacement cost of assets, providing a comprehensive view of a firm's market position relative to its tangible assets.By utilizing this method, the study gains a refined understanding of how market value correlates with the strategic management of knowledge assets and CSR initiatives.
To provide a structural framework for the analysis, the study employs a conceptual model (Figure 1).This model acts as a navigational tool, delineating the relationship between the dependent vari-

RESULTS
Table 2 delves into the descriptive statistics of the continuous variables in the sample, revealing a notable diversity in a firms' investment strategies, particularly in research and development (R&D).This diversity is not limited to R&D expenditure but also extends to the source of knowledge assets, highlighting varied approaches between reliance on internal development and external acquisitions.
The correlations among the primary explanatory variables are weak, suggesting a minimal risk of multicollinearity in the regression model.This observation is corroborated by the variance inflation factor test (VIF), where values significantly below the threshold of 5, as advised by Wang et al. ( 2023), further alleviate multicollinearity concerns.Table 2 provides the means and standard deviations for continuous variables, alongside their correlation coefficients, offering insights into their interrelationships and individual characteristics.As a second step, the variable of knowledge intensity (KNAI) and its squared counterpart (KNAI 2 ) were added aiming to discern the potential quadratic relationship between knowledge assets and firm value.As outlined in Table 3, the coefficients for knowledge intensity (KNAI) in Model 6 manifest a positive and statistically significant value (p < 0.05).In contrast, the coefficients for its squared version (KNAI 2 ) are negative and statistically significant (p < 0.05).This evidence suggests an inverse quadratic relationship between knowledge intensity and firm value.Therefore, the first hypothesis is supported.This implies that while knowledge assets are pivotal in value creation, their impact plateaus beyond a certain threshold.
To truly optimize organizational performance, there is a need to mesh knowledge assets with other intangibles like customer relations, brand equity, and fixed assets.
The fixed-effect model posits a turning point at 35.5% concerning the ratio of knowledge assets to total non-current assets.This model's outcome challenges previous research like that of Kuivalainen et al. (2009), which proposed a linear relationship between knowledge intensity and international financial performance.However, the findings resonate with the perspectives of Cuervo- As a third step, this investigation strikes an optimal balance between externally sourced and internally generated knowledge.To achieve this, two variables, outsource knowledge intensity (OKI) and its squared term (OKI 2 ), were introduced.Table 3 showcases that the coefficients for externally acquired knowledge are positively and statistically significant (p < 0.05).However, the coefficients for its squared term are negatively statistically significant (p < 0.05).This outcome supports the second hypothesis, showing an inverse quadratic relationship between externally acquired knowledge assets and a firm's value.The methodological approach of this study, focusing on the book values of firm assets, provides a more authentic assessment of knowledge assets' value compared to survey-based methods.However, this study is not without its limitations.Its focus on publicly listed firms may not fully capture the complexities of private entities, and the generalized treatment of inbound knowledge as a uniform category could obscure the differences between science-based and market-based collaborations.Future research should further dissect these categories, exploring their strategic balance and impact on firm performance.
Additionally, given the dual significance of knowledge assets and CSR in value creation, future studies could explore the synergy between eco-friendly innovation and firm value.This could yield valuable insights into how sustainable practices intertwine with knowledge management to drive firm success.In sum, this study illuminates various aspects of strategic management, offering new insights and establishing a foundation for more detailed investigations.The landscape of strategic management, as revealed through this study, is multifaceted and complex, inviting continued exploration and deeper understanding in the future.

CONCLUSIONS
In exploring the determinants of firm value, this study embarked on a journey with three distinct yet interrelated objectives.Firstly, it sought to unravel the impact of knowledge assets on a firm's market value.Secondly, it delved into the intricate dynamics between externally sourced knowledge and internal innovation efforts.Finally, the study probed the potential ramifications of corporate social responsibility (CSR) and sustainability practices on organizational value.
Employing a robust multiple regression analysis process within a knowledge-infused CSR framework, the study harnessed data from a diverse array of European publicly listed corporations.The findings weave a narrative that challenges traditional perspectives on firm value maximization.It emerges that firms achieve peak market value not merely through the accumulation of knowledge assets but through their strategic integration with other vital assets.A key insight from this study is the identification of an optimal knowledge asset combination.It was found that on the aggregate level, approximately 36% of knowledge assets relative to a firm's non-current assets could act as a catalyst for maximizing value.
The analysis further elucidates the nuanced balance between internal knowledge development and external acquisitions.It underscores that peak value is not realized by an overreliance on either source alone but through a synergistic blend of both.This equilibrium highlights the critical need for a judicious approach in both external knowledge acquisition and internal innovation efforts.
Moreover, a pivotal conclusion of this study is the enhanced role of CSR in the contemporary corporate milieu.Companies that deeply embed environmental stewardship, social responsibility, and strong governance within their strategic core are shown to enjoy superior market valuation.Conversely, firms that neglect these aspects are at a competitive disadvantage.This finding accentuates the evolving landscape of corporate strategy, where CSR is no longer a peripheral activity but a central tenet of business success.
Reflecting on these conclusions, the study underscores the complexity and multifaceted nature of factors that influence firm value in today's business environment.As the study is based on a high volume of panel data drawn from leading corporations, profound implications are drawn for both management theory and business effectiveness.This study not only contributes to the theoretical enrichment of strategic management but also offers practical guidance for firms striving to navigate the intricacies of knowledge management, innovation strategies, and CSR in the pursuit of developing competitive advantage and enhancing the market value.

Table 1 .
Composition of final sample based on county and economic sector

Table 2 .
Means and standard deviations for the continuous variables

Table 3 .
Multiple regression model development Note: Robust standard errors in parentheses.* denotes that the regression coefficient is significant at * 0.1; ** at 0.05; *** at 0.01.