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

2. Motivation Intuition Previous studies
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?

3. 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
formulated a golden rule – optimal investment when maximum value is reached
on the next step is interesting to learn about real patterns of companies' strategic behavior
reveal switching to innovative strategy
learn about drivers of this switching and its consequences

4. 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?

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

6. Pr y it =1 = exp α i +β∙ X it 1+ exp α i +β∙ X it ,
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
𝑦 𝑖𝑡= 𝛼 𝑖 + 𝛽∙𝑥 𝑖𝑡 +𝛾∙ 𝑥 𝑖𝑡 ∙ 𝑧 𝑖𝑡 +𝜇∙ 𝑥 𝑖𝑡 ∙ 𝑧 𝑖𝑡 ∙ 𝑡 𝑐 ,
yit- performance indicator
xit- intangible assets in previous year
zit-dummy variable: switching
tc-dummy variable: crisis
Pr y it =1 = exp α i +β∙ X it exp α i +β∙ X it ,

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

8. Switching by years

9. Results: probability of switching
(1)
(2)
(3)
(4)
(5)
VARIABLES
switch
switch25
switch50
switch75
switch100
Lagged EVA
6.71e-05
7.37e-05
7.35e-05
( )
( )
( )
( )
( )
Book value
-5.39e-05
8.69e-05
9.99e-05
(5.77e-05)
(6.20e-05)
(6.82e-05)
(8.59e-05)
(8.92e-05)
Crisis
-3.675***
-3.603***
-3.436***
-3.993***
-3.912***
(0.587)
(0.714)
(0.713)
(1.005)
Observations
2,274
1,583
1,451
1,333
1,239

10. Results: moderation effect of switching to innovative strategy in crisis

11. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EVA
Lagged intangible assets
0.193***
0.293***
0.259***
0.257***
(0.0371)
(0.0366)
(0.0362)
(0.0361)
(0.0369)
Crisis
-1.224
-2.567
-5.179
-4.765
-3.521
(6.300)
(6.318)
(6.253)
(6.243)
(6.068)
Book Value
0.0460***
0.0476***
0.0558***
0.0561***
0.0354***
( )
( )
( )
Moderation effect of switching (25%)
1.234***
(0.187)
Moderation effect of switching in crisis (25%)
-6.261***
(0.353)
Moderation effect of switching (50%)
3.245***
(0.219)
Moderation effect of switching in crisis (50%)
-5.218***
(0.392)
Moderation effect of switching (75%)
-38.83***
(1.878)
Moderation effect of switching (100%)
-41.00***
(1.932)
Moderation effect of switching
2.160***
(0.0734)
Moderation effect of switching in crisis
-1.765***
(0.201)
Constant
-16.60***
-19.66***
-22.20***
-22.63***
-10.97***
(3.120)
(3.118)
(3.085)
(3.081)
(3.017)
Observations
8,141
R-squared
0.183
0.179
0.195
0.198
0.243
Results: moderation effect of switching
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

12. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EVA
Lagged intangible assets
0.193***
0.293***
0.259***
0.257***
(0.0371)
(0.0366)
(0.0362)
(0.0361)
(0.0369)
Crisis
-1.224
-2.567
-5.179
-4.765
-3.521
(6.300)
(6.318)
(6.253)
(6.243)
(6.068)
Book Value
0.0460***
0.0476***
0.0558***
0.0561***
0.0354***
( )
( )
( )
Moderation effect of switching (25%)
1.234***
(0.187)
Moderation effect of switching in crisis (25%)
-6.261***
(0.353)
Moderation effect of switching (50%)
3.245***
(0.219)
Moderation effect of switching in crisis (50%)
-5.218***
(0.392)
Moderation effect of switching (75%)
-38.83***
(1.878)
Moderation effect of switching (100%)
-41.00***
(1.932)
Moderation effect of switching
2.160***
(0.0734)
Moderation effect of switching in crisis
-1.765***
(0.201)
Constant
-16.60***
-19.66***
-22.20***
-22.63***
-10.97***
(3.120)
(3.118)
(3.085)
(3.081)
(3.017)
Observations
8,141
R-squared
0.183
0.179
0.195
0.198
0.243
Results: moderation effect of switching
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

13. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EVA
Lagged intangible assets
0.193***
0.293***
0.259***
0.257***
(0.0371)
(0.0366)
(0.0362)
(0.0361)
(0.0369)
Crisis
-1.224
-2.567
-5.179
-4.765
-3.521
(6.300)
(6.318)
(6.253)
(6.243)
(6.068)
Book Value
0.0460***
0.0476***
0.0558***
0.0561***
0.0354***
( )
( )
( )
Moderation effect of switching (25%)
1.234***
(0.187)
Moderation effect of switching in crisis (25%)
-6.261***
(0.353)
Moderation effect of switching (50%)
3.245***
(0.219)
Moderation effect of switching in crisis (50%)
-5.218***
(0.392)
Moderation effect of switching (75%)
-38.83***
(1.878)
Moderation effect of switching (100%)
-41.00***
(1.932)
Moderation effect of switching
2.160***
(0.0734)
Moderation effect of switching in crisis
-1.765***
(0.201)
Constant
-16.60***
-19.66***
-22.20***
-22.63***
-10.97***
(3.120)
(3.118)
(3.085)
(3.081)
(3.017)
Observations
8,141
R-squared
0.183
0.179
0.195
0.198
0.243
Results: moderation effect of switching
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

14. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EVA
Lagged intangible assets
0.193***
0.293***
0.259***
0.257***
(0.0371)
(0.0366)
(0.0362)
(0.0361)
(0.0369)
Crisis
-1.224
-2.567
-5.179
-4.765
-3.521
(6.300)
(6.318)
(6.253)
(6.243)
(6.068)
Book Value
0.0460***
0.0476***
0.0558***
0.0561***
0.0354***
( )
( )
( )
Moderation effect of switching (25%)
1.234***
(0.187)
Moderation effect of switching in crisis (25%)
-6.261***
(0.353)
Moderation effect of switching (50%)
3.245***
(0.219)
Moderation effect of switching in crisis (50%)
-5.218***
(0.392)
Moderation effect of switching (75%)
-38.83***
(1.878)
Moderation effect of switching (100%)
-41.00***
(1.932)
Moderation effect of switching
2.160***
(0.0734)
Moderation effect of switching in crisis
-1.765***
(0.201)
Constant
-16.60***
-19.66***
-22.20***
-22.63***
-10.97***
(3.120)
(3.118)
(3.085)
(3.081)
(3.017)
Observations
8,141
R-squared
0.183
0.179
0.195
0.198
0.243
Results: moderation effect of switching
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

15. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EVA
Lagged intangible assets
0.193***
0.293***
0.259***
0.257***
(0.0371)
(0.0366)
(0.0362)
(0.0361)
(0.0369)
Crisis
-1.224
-2.567
-5.179
-4.765
-3.521
(6.300)
(6.318)
(6.253)
(6.243)
(6.068)
Book Value
0.0460***
0.0476***
0.0558***
0.0561***
0.0354***
( )
( )
( )
Moderation effect of switching (25%)
1.234***
(0.187)
Moderation effect of switching in crisis (25%)
-6.261***
(0.353)
Moderation effect of switching (50%)
3.245***
(0.219)
Moderation effect of switching in crisis (50%)
-5.218***
(0.392)
Moderation effect of switching (75%)
-38.83***
(1.878)
Moderation effect of switching (100%)
-41.00***
(1.932)
Moderation effect of switching
2.160***
(0.0734)
Moderation effect of switching in crisis
-1.765***
(0.201)
Constant
-16.60***
-19.66***
-22.20***
-22.63***
-10.97***
(3.120)
(3.118)
(3.085)
(3.081)
(3.017)
Observations
8,141
R-squared
0.183
0.179
0.195
0.198
0.243
Results: moderation effect of switching
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

16. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EVA
Lagged intangible assets
0.193***
0.293***
0.259***
0.257***
(0.0371)
(0.0366)
(0.0362)
(0.0361)
(0.0369)
Crisis
-1.224
-2.567
-5.179
-4.765
-3.521
(6.300)
(6.318)
(6.253)
(6.243)
(6.068)
Book Value
0.0460***
0.0476***
0.0558***
0.0561***
0.0354***
( )
( )
( )
Moderation effect of switching (25%)
1.234***
(0.187)
Moderation effect of switching in crisis (25%)
-6.261***
(0.353)
Moderation effect of switching (50%)
3.245***
(0.219)
Moderation effect of switching in crisis (50%)
-5.218***
(0.392)
Moderation effect of switching (75%)
-38.83***
(1.878)
Moderation effect of switching (100%)
-41.00***
(1.932)
Moderation effect of switching
2.160***
(0.0734)
Moderation effect of switching in crisis
-1.765***
(0.201)
Constant
-16.60***
-19.66***
-22.20***
-22.63***
-10.97***
(3.120)
(3.118)
(3.085)
(3.081)
(3.017)
Observations
8,141
R-squared
0.183
0.179
0.195
0.198
0.243
Results: moderation effect of switching
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

17. Results: moderation effect of switching
VARIABLES
(1)
(2)
(3)
(4)
(5)
EBIT
Lagged intangible assets
0.426***
0.585***
0.557***
0.555***
0.172***
(0.0417)
(0.0416)
(0.0414)
(0.0413)
(0.0422)
Book Value
0.112***
0.116***
0.125***
0.126***
0.100***
( )
( )
( )
Crisis
-6.640
-8.113
-11.78*
-11.20
-9.160
(6.887)
(6.978)
(6.942)
(6.934)
(6.736)
Moderation of switching (25%)
1.220***
(0.211)
Moderation of switching in crisis (25%)
-9.653***
(0.399)
Moderation of switching (50%)
3.416***
(0.250)
Moderation of switching in crisis (50%)
-8.657***
(0.446)
Moderation of switching (75%)
-47.05***
(2.135)
Moderation of switching in crisis (75%)
23.03**
(8.977)
Moderation of switching (100%)
-49.67***
(2.215)
Moderation of switching in crisis (100%)
29.16***
(9.025)
Moderation of switching
2.514***
(0.0841)
Moderation of switching in crisis
-3.014***
(0.230)
Constant
18.09***
12.75***
9.997***
9.304***
23.34***
(3.376)
(3.410)
(3.391)
(3.388)
(3.315)
Observations
8,749
R-squared
0.439
0.424
0.430
0.431
0.463
Results: moderation effect of switching

18. 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.

19. Results: threshold in the switching strategy
VARIABLES
(1)
(2)
(3)
(4)
EVA
EBIT
Lagged intangible assets
0.247***
0.551***
0.124***
0.374***
(0.0360)
(0.0419)
(0.0365)
(0.0417)
Book value
0.0373***
0.109***
0.0290***
0.0961***
( )
( )
( )
( )
Switching
( )
( )
( )
( )
Moderation effect of intangible assets
-8.658***
-8.991***
-6.372***
-5.545***
(0.567)
(0.660)
(0.576)
(0.661)
Square of the moderation effect of intangible assets
0.0242***
0.0228***
0.0227***
0.0207***
( )
( )
( )
( )
Moderation effect of intangible assets in crisis
-18.31***
-25.59***
(2.102)
(2.337)
Square of the moderation effect of intangible assets in crisis
0.0197***
0.0248***
( )
Constant
-10.64***
18.21***
-3.222
28.71***
(2.779)
(3.117)
(2.749)
(3.035)
Observations
8,141
8,749
R-squared
0.206
0.417
0.244
0.461

20. Results: threshold in the switching strategy
VARIABLES
(1)
(2)
(3)
(4)
EVA
EBIT
Lagged intangible assets
0.247***
0.551***
0.124***
0.374***
(0.0360)
(0.0419)
(0.0365)
(0.0417)
Book value
0.0373***
0.109***
0.0290***
0.0961***
( )
( )
( )
( )
Switching
( )
( )
( )
( )
Moderation effect of intangible assets
-8.658***
-8.991***
-6.372***
-5.545***
(0.567)
(0.660)
(0.576)
(0.661)
Square of the moderation effect of intangible assets
0.0242***
0.0228***
0.0227***
0.0207***
( )
( )
( )
( )
Moderation effect of intangible assets in crisis
-18.31***
-25.59***
(2.102)
(2.337)
Square of the moderation effect of intangible assets in crisis
0.0197***
0.0248***
( )
Constant
-10.64***
18.21***
-3.222
28.71***
(2.779)
(3.117)
(2.749)
(3.035)
Observations
8,141
8,749
R-squared
0.206
0.417
0.244
0.461

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