Cheating in the evaluation. An expedient to estimate the impact of intangibles on the enterprise value of the high-growth start-ups

Giulia Cattafi, Giovanna Mariani, Francesco Pistolesi and Domenico Nicol?

MANAGEMENT CONTROL, 2023, vol. 2023/3, issue 3, 193-218

Abstract: This study investigates the effect of investments in intangible fixed assets and human capital on the Enterprise Value (EV) of Italian high-growth startups (HGSs). To test our hypotheses, we conducted several Ordinary Least Squares (OLS) regression analyses on a dataset comprising 782 HGSs. The EV was esti-mates using the Discounted Cash Flow (DCF) method. Our findings reveal a posi-tive and statistically significant relationship between investments in intangible as-sets and EV. However, investments in human capital and highly skilled workers show a negatively relationship with EV. Lastly, a positive and statistically signifi-cant relationship between value-added per employees and the EV of HGSs has been identified. This study offers valuable insight into the process through which new firms gener-ate value. By strategically investing in intangible assets and human capital, startups not only enhance their probability of survival but also improve their growth potential. This allows these companies to overcome the challenges of the early stage and embark on a sustainable growth process. To spotlight the unique value drivers of these companies, unlike prior studies, we manually estimate the EV. We have employed the DCF method by playing the cards face up: we used the actual cash flows realized by the HGSs during the study period instead of rely-ing on forecasts. We have therefore ?cheated? to measure the value created by the HGSs. This research can be considered a pioneering study that significantly con-tributes to the ongoing debate on the value creation process in fast growing startups.

Date: 2023
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