Innovation and Earnings for SMEs

Intellectual capital plays a fundamental role in today's society in which knowledge and information are key elements for the development and the success of businesses. Its importance, and the value of putting it into the hands of stakeholders, has led to an increase in studies that propose models that try to measure and evaluate intellectual capital and has led to businesses applying and even publishing these studies as non-financial information. In this sense, several lines of study have appeared that find it is good to disseminate its existence in a business through intellectual capital reports, Integrated Reports and through calls for greater improvement in a business' financial information to adequately reflect these types of intangibles and satisfy the requirements of the users of this information. However, conceptual accounting frameworks contain some requirements to include these types of intangibles in financial statements. These requirements can be difficult to meet since there are authors and professionals who warn that this kind of financial information can make financial statements lose their relevance. We can consider the fact that the JOBS Act in the U.S., as well as the Proposal of the Directive of the European Parliament and of the Council(1) both call for the reduction in the informational demands of SME's financial statements is another limitation to the greater improvement of financial information. We have observed two positions. On one hand, the call to amplify financial information to include aspects like the intangibles that are currently excluded but that are very relevant for stakeholders, for which more complete and detailed models and reports are proposed. On the other hand, a call to reduce the extent of the information required in financial statements is made and justified on the grounds of the related costs that SMEs must incur in terms of the cost/benefit relationship that this financial information provides. Our research, built on the resource-based and dynamic capabilities theories, attempts to shed some light on the fact that, once again, the utility of the information contained in accounting or financial statements is being examined. To do this we analyse if the financial information contained in SME's statements is not only important but also that when this information is taken into account with other, non-financial information it provides a way to measure the effect of innovation. This type of intangible information allows SMEs to attain greater earnings and creates greater chances of survival, especially within an economic crisis environment, which can be considered to be very relevant for stakeholders. Nowadays, we are conducting the analysis of the results of the research.