Competence value emersion: A key to sound practices in entrepreneurial finance. from 'Q' to 'T' ratios in the North-Eastern Italian experience

The determinants of the value of entrepreneurial competences in incomplete financial markets will be examined. The study has revealed that time is the economic link between marginal productivity of capital asset and human competence. This being the case, provide a detailed description of the basics of a potential methodology for measuring the “competence value” and comparing it against standard goodwill estimation methods. We suggest that contingent-claim finance solutions can help enterprises to transform competence value into goodwill. The results of the empirical analysis conducted to estimate the competence value and the goodwill for a sample made of more than 3,000 Italian Companies in the highly competitive Treviso’s District. Empirical evidence has shown that the proposed Intato-T-Ratio is a good proxy of competence value estimation, stronger than the widely diffused Tobin-Q-Ratio. Aborting competence value in credit allowances procedures might have a dramatic impact particularly on SMEs after the adoption of the next Basel-3 agreement. Diversion of capital allowances from long term opportunities to short term profit margin could be very strong, thus increasing the overall economic volatility. The empirical analysis shows possible upgrades for the indicator for a very practical use inside the approaching regulation system.

The determinants of the value of the entrepreneurial competences and behaviour are examined. The study reveals that time is the link between marginal productivities of the capital assets and that of the human competences. The successful entrepreneur behaves in order to give marketability to skills, riding a cycle that transforms them into a corporate hallmark. We provide a detailed description of a methodology to measure the 'competence value' and to compare it against standard goodwill estimations. Results of empirical analysis over a sample made of more than 3,000 Italian companies show that the proposed Intato-T-ratio is a stronger estimator than the widely diffused Tobin-Q-ratio. Allocating investments according to the competence value can exploit immediately 51% of hidden values and allow higher growth rates during an entrepreneurial cycle lasting 13 years on average. Aborting competence value in credit allowances procedures will impact dramatically on SMEs after the adoption of Basel-3 agreements.