Thursday, 17 March 2016

Quantified value story 101 - MAKE awards again

Here is a new study about the link between the MAKE awards and company value.

The MAKE awards are annual awards given to companies recognised as leaders in “transforming individual and enterprise knowledge into shareholder value”. In other words, famous for delivering value through KM.

A panel of Fortune 500 senior executives and internationally recognized knowledge management / intellectual capital experts nominate organizations, and rate them against the MAKE framework of eight key knowledge performance dimensions -- visible drivers of competitive advantage and intellectual capital growth.  Thuis use of an expert panel is described as a Delphi approach.

The study described above looks at the effect the MAKE award has on share price - both in the short term and over the course of a year.

The study highlights the following findings:

We find that MAKE winners: (1) experience positive abnormal returns around the award announcement, (2) report superior operating performance relative to their peers subsequent to the receipt of the award, (3) receive upward analyst forecast revisions following the award, (4) experience a positive upward stock price drift following the award, and (5) that the market has taken time to learn how to process and interpret information useful in valuing KM.
And concludes as follows:

We investigate the stock price and performance implications of KM by examining the short window stock market reaction and future performance of companies receiving the “Most Admired Knowledge Enterprise” (MAKE) award, which recognizes companies with superior KM abilities. 
We find that during the five days surrounding the award announcement, MAKE winners experience 1.23% abnormal stock returns. We also find that MAKE winners surpass their peers in terms of operating performance during the year subsequent to winning the award, that equity analysts are relatively more likely to make significant upward revisions to MAKE winners' earnings forecasts during the month following the award, and that abnormal returns are positive for the MAKE winners over the year following the announcement of the award. 
In addition, we find evidence consistent with market participants learning about the valuation implications of a MAKE award over the period of our analysis. 
Taken together, our study contributes to the literature in two ways. First, prior market-based research has not examined whether KM is valued by the market, and while KM investments are growing rapidly, there is controversy surrounding their ability to increase share value. However, we find evidence that excellence in KM leads to higher stock prices. 
Second, we examine the market reaction to the issuance of an award, based on the Delphi Method, to draw inferences about whether and how the market values KM. Specifically, our analysis suggests that the Delphi method can be used as a group decision support system to gather information and opinion from experts to provide value to the markets

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