Impact of intangible assets on financial performance of small and medium enterprises

Impact of intangible assets on financial performance of small and
medium enterprises
Student Name – Charith Saranga Kahapolage
Submission Date- 17th of January 2020
Theory into Practice (BSS056-6)
Final Research

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Executive summary
The aim of this systematic review is to critically evaluate current leading knowledge on the
impact intangible assets on financial performance of SMEs. To cater above aim, the author
expects to construct most suitable framework for evaluating most effective organizational
intangible assets in SMEs to achieve better financial performance and sustainability. So the
key objectives of this systematic review are, Identifying and evaluating intangible assets of
small and medium scale enterprises, evaluating factors affecting financial performance of
small and medium scale enterprises, critically investigating the level of impact of intangible
assets from factors identified above through evaluating, evaluating most effective intangible
assets that could enhance financial performance of small and medium level enterprises.
This paper is a systematic review of selected good quality journal articles with the purpose
of synthesizing leading knowledge in selected area of study. The research will follow the
reviewing of current leading literature and the evidence found through twelve number of
good quality academic journal articles according to pre-planned criteria by filtering most
recent and relevant literature in deductive approach and synthesizing research findings
aligning to set objectives. Ultimately the author will aim to describe the conclusion along
with evidence to minimize research gaps.
According to the findings of this study, it has clearly reached the research objectives and
emphasized a strong correlation between intangible assets and financial performance of
SMEs. For achieving this result, the author has utilized 12 journal articles and due to the
limitation of systematic review depends on secondary data, validation of the author
developed framework is required.

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Table of contents
Executive summary …………………………………………………………………….………………………….….01
1.0 Background ………………………………………………………………………………………….................04
1.1 Rationale …………….…………………………………………………………………………………..04
1.2 Scope ……………………………………………………………………………………………… ….04-05
1.3 Aim and objectives …………………………………………………………………...................05
1.4 Theoretical underpinning ………………………………………………………………….…05-06
1.5 Method of analysis …………………………………………………………………………………..06
1.6 Evidence …………………………………………………………………………………………………..07
2.0 Literature review …………………………………………………………………………………………….…..08
2.1 What are intangible assets ……………………………………………………………….…08-09
2.2 How intangible assets are evaluated …………………………………….………….…09-10
2.3 How intangible assets are evaluated …………………………………….…………………11
2.4 What is financial performance of SMEs ……………………………….………….……..12
2.5 Factors affecting financial performance of SMEs…………………………..……12-13
2.6 Critically investigating the level of impact of intangible assets…………….....14
2.7 Evaluating most effective intangible assets on financial perfo………….…15-16
3.0 Analysis …………….....................................................................................................17
3.1 Method of analysis …………………………………………………………………….……….17-21
3.2 Evidence ………………………………………………………………………………………..……22-26
3.3 Methodology and method of data analysis ……………………………………………….27
3.4 Thematic synthesizing ………………………………………………………………………………27
4.0 Discussion ………………………………………………………………………………………………………….28
4.1 Identifying intangible assets…………………………………………………………………28-29
4.2 Evaluating intangible assets …………………………………………………………………29-30

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4.3 Identifying intangible assets in SMEs ………………………………………………...31-32
4.4 Identifying financial performance of SMEs and factors affecting it..…..32-34
4.5 5 Impact of intangible assets on financial performance SMEs………..…..34-36
5.0 Conclusion and recommendations………………………………………………………….….....38-40
References ………………………………………………………………………………………………………….41-46

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1.0 Background
Tangible success factors of organizations are discussed often but intangible factors have not
been given the consideration as such. Intangible assets of an organization are resources
those are physically not available and no monetary value such as brand value, good will,
competencies, customer satisfaction, customer retention, innovations (Song and Kee
2012a). With rapid growth and changes in todays globalized business context, evaluating
and managing intangible assets will give a proper understanding for organizations to get a
competitive advantage to compete in the market.
1.1 Rationale
With the rapid growth of competition among firms, small and medium organizations even
have focused on strategic approaches for developing and managing their organizational
success factors but most of them are focused on tangible factors and intangible assets are
not considered most of the time.
In that context, of most of literature has also mainly focused on tangible success factors or
they have been focused on factors affecting large scale organizations and there is no such
consideration has been given for small and medium scale enterprises. According to (Song
and Kee 2012b), it has identified that small and medium scale organizations are the key
point for developing nations and 90% of those organizations gain income through intangible
assets but the consideration of intangible assets has neglected. So identifying the impact of
intangible assets on financial performance of SMEs will give a clear picture on such
organizations to develop their strategies considering the outcome of this research.
1.2 Scope
This paper will focus on impact of intangible assets on financial performance of small and
medium scale businesses generally. Classification of sizes of businesses may slightly vary by
country to country so this paper will consider SMEs as the organizations that have less than
250 employees. So this will discuss on overall financial performance of SMEs to understand
the status of financial level and factors affecting financial performance. Then it will be
discussed impact of intangible assets and their effectiveness and managing them. This paper
will not discuss by limiting to a certain region or a certain business and will discuss as

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considering SMEs generally. So SMEs in various countries in various regions have been
considered for giving an accurate picture in general business context.
1.3 Aim and objectives
This paper aims to identify the impact of intangible assets on financial performance of small
and medium enterprises and evaluate effective such intangible assets along with
suggestions to manage them.
The objectives that have been identified are to,
1. Identifying and evaluating intangible assets of small and medium scale enterprises.
2. Evaluate factors affecting financial performance of small and medium scale
enterprises.
3. Critically investigate the level of impact of intangible assets from factors identified
above through evaluating.
4. Evaluate most effective intangible assets that could enhance financial performance
of small and medium level enterprises.
1.4 Theoretical Underpinning
Identifying intangible assets of SMEs
Intangible assets are defined as assets, elements, resources and capacities that belongs to
an organization that help to achieve organizational strategies but not have been disclosed in
company balance sheet (Steenkamp and Kashyap 2010). Intangible assets that would be
crucial to large organizations may not effective on SMEs in same level. According to (Durst
2008), he has identified that eight numbers of most important intangible assets for SMEs
namely, competencies of the owner, employees, culture, organizational structure,
innovations, knowledge, customers and networks. So this paper will broadly discuss
identifying related intangible assets for SMEs from general context.
Factors affecting financial performance of SMEs
Financial performance of an organization can be declared from several aspects and in this
article it is detonated by the net profit of an organization. According to (Niskanen 2012),
attitude and know-how of owners or directors have a significant impact on financial
performance of SMEs. Government support and economic condition of the country has also

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a significant impact on financial performance of any organization despite they are large
scale or SMEs (Peter et all 2018). According to (Ombongi 2018), innovations and R & D skills
of an organization has been identified as important resources for achieving financial
performance through competitive advantages.
Managing of intangible assets
Managing intangible asset registers, initiation of key personal indicators important such
assets are very useful methods of managing and evaluating intangible assets (Watson 2010).
According to (St-Pierre and Audet 2011), managing aspects of intangible assets should be
lied with strategic management plan of the organizations and prioritizing of such assets
should be done accordingly.
1.5 Method of analysis
This paper is a systematic review of selected good quality journal articles in areas of
identifying intangible assets, financial performance, evaluating and managing intangible
assets in SMEs to find out impact of intangible assets on financial performance of small and
medium scale organizations. Since lack of availability of relevance data of organization wise
and this paper is based on secondary data, systematic review methodology has been
selected. Selecting of articles have been done by a predetermined criteria given by scope of
this review.
A broad selection of journal articles has been filtered through PRISMA model by considering
the quality, relevance and scope of the articles. The articles that have been published more
than twelve years earlier were excluded to improve the validity of this paper.
The aim of this review is to synthesize best available research papers relates to the research
question. So this review will cite external data, sources and other available evidence that
credit or discredit key ideas and suggestions provided in selected research articles. This
paper will be based primarily on qualitative research methods.

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1.6 Evidence
Above literature review provides key evidence that point a correlation between impact of
intangible assets and financial performance of small and medium scale organizations.
• Proper evaluation of tangible and intangible assets will give an overall idea about
competitive advantages of the organization.
• Small and medium scale organizations give the highest participation for the economy
of a country and those organizations produce 90% of income through their intangible
assets.
• Important intangible assets in large scale organizations may slightly differ with small
and medium scale organizations.
• Managing intangible assets should be aligned with company strategies for better
results.

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2.0 Literature review
In today’s very competitive business context, managing assets of an organization is a
significant success factor. Assets in an organization can be divided basically for two different
categories such as tangible assets and intangible assets. Physical available and assets with a
monetary value are considered as tangible assets in an organization. On the other hand,
intangible assets of an organization are considered as resources those don’t declare a direct
monetary value or physically available, such as competencies of employees, brand value,
customer satisfaction, customer retention, innovations, culture of the organization, etc. So it
is very important to explore existing literature on intangible assets in several related
aspects. This chapter discusses available literature on intangible assets of an organization in
generally to get in depth understanding to support the present study.
2.1 What are intangible assets.
Nowadays, various participants such as professional bodies, consultants, government
agencies, academics from various disciplines such as economics, strategic managements,
finance, accounting, organizations have focused on intangible assets (Lev and Zambon
2003). There are several words in management terminology that have been using to refer
intangible assets such as intangibles, intellectual capital, intangible capital, intellectual
assets, intangible resources, knowledge resources, etc (Fincham and Roslender 2003; Lev
2001a; Tomer 2008; Bismuth and Tojo, 2008; Robertson and Lanfranconi 2001; Bontis et al
1999). As there are several terminologies for identifying intangible assets, there are several
definitions for defining intangible assets (Diefenbach 2006). According to (New Zealand
Institute of Chartered Accountants n.d), an intangible asset is a substance that can be
identifiable as a non-monetary asset but physically not available. According to the literature
available under intellectual capital, it defines intangible assets as a substance that have a
future benefit and value but does not available physically and financial embodiment, a
source to generate a value to the organization through innovations, brand, human resources
and organizational uniqueness (Lev 2001b). According to (Hall 1992), intangible assets can
be identified as all assets or resources, capacities and elements that are attributes of an
organization to deliver of the organizational strategy but that have not been disclosed in
organizational balance sheet. Examples for intangible assets can be mentioned as skills,

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company know-how, brands, capabilities of the organization, corporate reputation,
relationships with all stakeholders and innovations (Marr 2008).
2.2 How intangible assets are evaluated.
Having proper understanding and knowledge of intangible assets in an organization and
evaluating value of them allow the organization to allocate intangible assets effectively
(Cañibano et al 1999). All the resources available in an organization are not important
equally whether they are tangible or intangible assets, so evaluating and finding resources
that enhance the competitive advantage and determining valuable, rare, inimitable and
non-substitutable status of them (Barney 1991). The competitive advantage of resources
will be sustainable when they are diversified and imperfectly transferable recourses
(Lippman and Rumelt, 1982). According to (Itami and Roehl 1987), said type of rare
resources are usually intangible assets of an organization. Evaluation of intangible assets has
been identified as an important part in last two decades (Guthrie et al 2006). When
evaluating intangible assets, there are two tasks that have been identified by (López and
Nevado 2008), one is identification and classification, other one is finding indicators that
should be used to measure intangibles, so ultimately it is used to monitor the output and do
a comparison of the situation against benchmarked firms. For evaluating determinants for
valuating intangible assets of an organization, the valuation methodology to be practised
(Marr and Gray 2002). Following steps and processes have been found in available literature
when evaluating intangible assets. a) Strategy formulation, for developing this, it requires to
list out available resources with connection among intangibles, other resources and the
performance (Grant 1991). b) Strategy assessment and execution, intangible assets are
elements of inputs that an organization should use to create a business strategy but after
implementing the strategy successfully, intangible assets become outputs as well (Neely et
al 1996; Bassi and Van Buren 1999). c) Defining compensation systems, nowadays most
organizations have understood that counting only on financial figures is a short term
operation management model (Johnson and Kaplan 1987). Establishing an intensive scheme
that focuses on improving organizational values will strongly work on increasing and
developing intangible assets in the future (Bushman et al 1995). d) Strategic development,
diversification and expansion, to fully utilization of organizational resources, most
organizations try to diversify, merge and joint venture opportunities (Teece, 1980).

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According to (Lev 2001c), investing on intangibles like R & D and advertising will improve the
diversification of an organization (Morck and Yeung 2003). e) Communicating the value of
the company’s resources to stakeholders, having lack of information of organizational
intangible assets causes organizations to under value the company, increasing capital
expenditure, etc (Leadbeater 2000; Gu & Lev 2001).
According to (Marr and Gray 2002), evaluating intangibles can be divided to two directions
namely internal and external motives. External motives are considered as motives that
report intangibles to external stakeholders of the organization such as shareholders,
borrowers, suppliers, partners and the society. Also internal motives are considered as
motives that produce information to internal stakeholders. The internal motives can be
identified as managers in an organization and in most organizations managers are not well
aware about organizational intangible assets (Lev and Zarowin 1998). For valuation of
internal and external motives in a countable and measurable way, a framework has been
developed by (Alonso et al 2015) through their research.
Figure 2.2: Evaluation of intangibles foe internal and external motives
Source: Alonso et al 2015

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2.3 Intangible assets in SMEs.
According to available literature, there is no any standard measure to identify Small and
Medium level Enterprises and several factors in an organization are used to measure their
sizes by using number of employees, sales volumes, industrial classifications, etc (New
Zealand Ministry of Economic Development 2009). Most of OECD countries including New
Zealand uses the factor, number of employees for defining size of the business (OECD 2004).
According to the research done by (Natasja and Kashyap 2010), they have found and rated
following intangible assets of SMEs. Their studies have done to find out intangible assets
that help to overall business performance.
Figure 2.3: Intangible assets in SMEs.
Source: Natasja and Kashyap 2010

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2.4 What is financial performance of SMEs.
Small and medium scale organizations have been identified as a major contributor for global
economy growth (Bubou 2014). The financial performance of an organization is how
available assets are utilized in an optimum level to increase income of the business (Baxter
2007). Financial performance of an organization is measured within a predefined period of
time usually called as a financial year and organization can use the output to define their
objectives (Berger et al 2006). Financial performance of an organization can be evaluated
by different financial measures but all of them should be considered as one such as earning
before tax, inventory levels, cost of sales, operating income, cash flow statement, etc (Brush
et al 2000). According to (Gunday et al 2011), it is not possible to sustain financial figures by
only using financial performance without the support of non-financial measures (Gunday et
al 2011). There are several financial documents that emphasize financial performance of an
organization such as financial position statement, profit and loss statement and cash flow
statement.
2.5 Factors affecting financial performance of SMEs.
According to (Bhagwat and Sharma 2007), return of investment, return of assets and
ultimately positive cash flow is significantly depend on intangible assets like customer
satisfaction and internal efficiency control methods. According to (Philip 2010), he has
emphasized that there are six independent variables that impact on financial performance
of SMEs such as management strategy, business know-how, products and services, the way
of doing business and cooperation, resource and finance and external environment.
According to study done by (Song and Kee 2012), they have identified several intangible
assets that have an impact on financial performance of SMEs namely, brand value, good
will, value of immaterial and properties.

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Figure 2.5a: Success factors
Source: Song and Kee 2012
According to the study done by (Philip 2010), for identifying factors that impact on financial
performance of SMEs, he has received below results through his research.
Figure 2.5b: Results of regression analysis on financial performance factors of SMEs
Source: Philip 2010
According to above study, business know-how, product and services, the way of doing
business and cooperation, external environment are significant factors for financial
performance of small and medium enterprises.

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2.6 Critically investigating the level of impact of intangible assets on financial performance
of SMEs from identified factors in (2.5)
As concluded through above studies, there is a significant impact on financial performance
of SMEs due to several factors and among them, from above studies, there are clearly
intangible factors as well as some factors that need to be critically analysed for identifying
related intangible assets. So each six factors that have been used for its research hypotheses
have been critically analysed for determining related intangible assets out of them.
When analysing concluded above six research hypotheses from above studies by using
available literature, a) Management strategy, defined management system by the
organization for managing its resources to achieve organizational goals and objectives
(Hayes 1985). b) business know-how, according to (Bones 2007), business know-how can be
defined as abilities, skills, knowledge that the management, other employees, suppliers,
distributors and stakeholders have for running the business successfully. c) Products and
services, a product can be mostly a tangible thing while services are intangibles, but when it
comes to product quality, the product also become (Carte et al 2015). d) The way of doing
business and cooperation, the way of doing business can be defined as the relationship with
all stakeholders of the organization and strategies of the firm to deal with them to get
cooperate success (Hitt et al 2000). e) Resources and finance, resource with financial value
and financing strategy have been identified as per above study. f) External environment, it
can be mainly divide into two main factors such as micro environmental and macro
environmental factors. Micro environment factors are suppliers, customers, distributors,
investors and reputation of the firm. Macro environmental factors can be identified as
political, economic, social, technical, legal and environmental and the industry (Johnson et
al 2017).
According to above analysis, it evident that there are significant number of intangible assets
in each six factors that have been identified for impacting financial performance of an
organization. With studies done on intangible success factors of SMEs, organizations are
realizing the importance of intangible assets for improving financial performance (Hall 1992;
Zigan and Zeglat 2010). According to (Atkinson et al 1997), intangible assets have a big role
in organizations to maintain good relationships with employees, customers, suppliers and
other stakeholders.

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2.7 Evaluating most effective intangible assets on financial performance of SMEs.
Evaluating intangible assets for directly measuring financial performance impact is difficult
since the value of intangibles always merged with different factors (Durst 2008). According
to (Edvinsson and Malone 1999), intangible assets can be divided to three categories such as
human capital, relational capital, and structural capital that have an impact on financial
performance. Human capital is abilities, knowledge, know how, competencies and
experience of employees and managers in an organization (Edvinsson and Malone 1999).
According to available literature, human capital is the most important intangible asset since
it has the creativity and innovations (Bontis 1998; Brooking 1996; Edvinsson and Malone
1999).
Relational capital can be identified as all stakeholders that have a relationship with the
organization and the know-how associated with them (Bontis 1998; Canibano et al 2000).
According to (Choong 2008), he has used by dividing structural capital into two factors such
as process capital and innovation capital. According to the literature, individual intangible
asset or single component of intellectual capital cannot produce a value individually in a
separate manner (Cohen and Kaimenakis 2007; Edvinsson and Malone 1999).
According to (Cohen and Kaimenakis 2007; Tan et al 2007; Tovstiga and Tulugurova 2009),
an organization’s financial performance has a positive link with intangible assets and a
positive correlation exists between intangible assets growth rate and business performance.
According to the studies of (Herremans et al 2007), he has linked that a positive link
between various intangible assets and organizational cash flow. According to (Appuhami
2007), he has concluded that a positive correlation of effective human capital intangible
assets management, structural capital and investors gain on shares. Also (Kamath 2008), has
discovered a positive direct link between profitability and human capital intangibles. Below
shows the conceptual framework and hypothesis developed by (Wang and Chang 2005).

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Figure 2.7: Conceptual framework and hypotheses for performance factors of of SMEs
Source: Wang and Chang 2005
Evidence indicates that positive perspective towards intangible assets in terms of
organizational performance of SMEs but there is a slight variation of intangibles assets
identified claiming financial performance and this the performance gap of this research that
is to be minimized. In method of analysis chapter, it will be explained method to analyse
knowledge extracted from available literature and law like relationship by deductive
reasoning with MBA knowledge on business research methodologies. After the method of
analysis, through discussion chapter the author will aim to evaluate filtered twelve journal
articles by considering relevance and published date in reasonably but rigorously to reach
the intended aim and objectives.

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3.0 Analysis
3.1 Method of analysis
This research is based on systematic review of most relevant and recent academic
researches that aims to synthesise current knowledge of intangible assets and financial
performance of SMEs to find out relationship between them. According to (Dobson 2002;
Saunders et al 2009), systematic review method is a procedure of reviewing available
literature by using a pre-defined criterion for filtering most relevant and current literature,
asses the connection, analysing on deductive themes and synthesise extracted knowledge
and findings to align with set new research objectives. Ultimately, the author will try to
present the conclusion with thorough evidences by minimizing research gaps.
As the author has stated in the literature review, the author believes that there are some
slight variations of identified intangible assets in existing literature relates to SMEs and
relationship between intangible assets and financial performance of SMEs. Even there are
lots of researches on intangible assets under the key word of intangible assets and
intellectual capital, the questions regard to relationship between financial performance and
intangibles assets have not been answered or partially answered with inconsistency. So it
was perceived that there is a requirement of generating a clear picture to understand
intangible assets and financial performance of SMEs through a direct future research.
According to (Saunders, Lewis and Thornhill 2012), above stated two reasons are sufficient
enough to carry out a systematic review on intangible assets and financial performance of
SMEs. A systematic review may have some limitations that it highly depends on secondary
data. As per the belief of the author, In Sri Lankan business context, there are lots of
opportunities to carry out primary researches on intangible assets and financial
performance of SMEs since, the author engages in one of largest business group that owns a
large number of medium scale organizations. But with the limitation of time and other
factors, the author has decided to carry out a systematic review in particular research area.
Selection of studies for this systematic review, was done through Elsevier, Ebsco and
Emerald Insight research databases by considering its substantial library of peer reviewed
academic journals in the area of intangible assets, intellectual capital, financial performance
of organizations and small and medium enterprises.

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Table 3.1a: Search criteria
Search criteria Value(s)
Research databases • Elsevier
• Ebsco
• Emerald insight
Utilized database search services • Elsevier research data base
• Ebsco research database
• Emerald insight research database.
Type of the source • academic journals
Search terms/keywords • Intangible assets of an organization
• Intangible assets of SMEs
• Evaluating intangible assets
• Financial performance of SMEs
• Evaluating financial performance of SMEs
• Impact of intangible assets on financial
performance of SMEs
• Most effective intangible assets for financial
performance of SMEs
• Intellectual capital
Search expanders • Sorted method - most recent
• Type of the content - articles
Search limiters • Peer-reviewed articles only
Timeframe • Published in 2008 – 1 article
• Published in 2010 – 3 articles
• Published in 2016 - 3 articles
• Published in 2018 - 2 articles

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Inclusion and exclusion process was done according to the guidelines of table 3.1 and
several keywords have been used for finding most applicable articles such as intangible
assets of an organization, intangible assets of SMEs, evaluating intangible assets, financial
performance of SMEs, evaluating financial performance of SMEs, impact of intangible assets
on financial performance of SMEs, most effective intangible assets for financial performance
of SMEs and intellectual capital. The search process was filtered to only find articles that
have been written in English language. For maintaining maximum reliability and quality of
this study, the author has purposefully selected only peer-reviewed articles in academic
journals, published in 2008, 2010, 2011, 2012, 2016 and 2018. Filtering articles by
considering their categories and the screening procedure helped the author to peruse
feasible article with adequate depth under relevant topics.
Intangible assets of an organization and its financial performance are factors that exist in
any scale of organization globally, but this systematic review has aimed small and medium
scale organizations in global context. So selection of articles is not limited to any
geographical area or any specific business but has been limited according to the size of
business when further discussing intangible assets and financial performance relate to
SMEs. After initial filtering and screening mechanism which has been stated above, further
screening was carried out by considering on the topic of article, abstract and the table of
contents for removing any duplications. Some articles that were found by the search with
relevant titles had to be removed after perusing the content since irrelevant conceptual
framework. Below Figure 3.1 illustrates PRISMA model flow chart for selecting process of
samples. Acronym of PRISMA is Preferred Reporting Items for Systematic Review and Meta-
Analysis (Saunders, Lewis and Thornhill 2012). A summary of articles perused according to
the frequency of areas that aligned with key words of 28 studies identified in this review has
been presented in Table 3.1b.

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Figure 3.1: Flow chart of selecting researches according to PRISMA checklist
Articles found through data
bases
Ebsco/Emerald /Elsevier
(n = 34)
Articles after duplicates were removed (n = 28)
Records screened by
topic, abstract and
table of content
(n = 28)
Full text articles
evaluated for relevance
(n = 23)
Articles selected for
qualitative synthesizing
(n = 12)
Articles selected for
quantitative analysis
(n = 1)
Articles selected from
other sources
(n = 0)
Records excluded
(n = 5)
Full text articles excluded
(n = 11)
Just theoretical analysis – 5
Single case-studies without
in-depth focus – 6
Identification
Screening
Eligibility
Included

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Table 3.1b: Frequency of relevant research articles perused with reference to intangible
assets and financial performance
Research theme Number of studies
Intangible assets 4
Business performance of SMEs 3
Financial performance of SMEs 2
Intellectual capital 2
Managing intangible assets 1
The business strategy and intangible assets 2
Evaluating intangibles 2
Financial valuation of intangibles 2
Factors affecting financial performance 1
Intangible factors and organization success 1
Importance and contribution of intangibles for SMEs 3
Total 23

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3.2 Evidence
Below Table 3.2 illustrates the evidence of the research.
Author
(Year)
Theme • Methodology
• Sample size
• Platform
• Industry
Key findings
Matsoso &
Benedict
(2016)
Financial
Performance
Measures of Small
Medium Enterprises
in the 21st Century
• Survey
• 126 respondents
• Purposive sampling.
• Manufacturing sector
• Measuring of financial performance
is considered as most important by
this sector.
• This sector has a lack of skills to
understand what are the key
financial measures to be made.
• Lack of understanding selecting
relevance financial measures
appropriate for business.
Ombongi
& Long
(2018)
Factors Affecting
Financial
Performance of Small
and Medium
Enterprises (SMEs)
• Survey
• 150 respondents
• Non-probability sampling.
• Manufacturing firms.
• SMEs are the major contributors for
the economy.
• Major factors that enhance financial
performance of SMEs are back credit,
intellectual capital, country GDP and
technology.
Lappalaine
n &
Niskanen
(2012)
Financial
performance of SMEs
• Survey
• 621 respondents
• Non-probability sampling
• SMEs in different industries.
• The organizations with high
managerial ownership level have a
higher profit but lack in growth.
• Organizations with external board
members are lack in identifying
factors affecting finance performance
rather than internal board members.
Alonso,
Merino &
Ayastuy
(2015)
Motives for Financial
Valuation of
Intangibles and
Business
Performance in SMEs
• Survey
• 369 respondents
• Non-probability sampling
• SME managers in Spain
• Financial valuation of Internal
motives and external motives of
intangible assets are important for
financial performance.
• Financial valuation of intangible
assets is more important to SMEs
than large scale organizations.
• Intangible assets of an organization
are strategic recourses and
neglecting of evaluation them may
reduce the competitive advantage of
the firm.
• Intangible assets are an essential
factor for competitiveness of the
organization.

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Author
(Year)
• Sample size
• Platform
• Industry
Key findings
Pierre &
Audet
(2011)
Intangible assets and
performance
Analysis on
manufacturing SMEs
• Survey
• 267 respondents
• Purposive sampling.
• Different firms use different methods
to manage intangible assets in their
organizations.
• Relating to the process capital,
internal communication was found
very low and poor.
• The organizational growth strategies
have not been established well and
linking with relational capital such as
internal and external stake holders.
• All intangible assets don’t have an
impact on performance of an
organization in the same level.
Durst
(2008)
The relevance of
intangible
assets in German
SMEs
• Survey
• 131 respondents
• According to some previous studies,
Intangible assets are having a
moderate impact on SMEs but
according to this research, majority
of respondents have emphasized that
intangible assets have a great impact
on SME performance.
• Intangible assets on an SME have
greater impact on decision making
and investment probability of
investors.
• Competitiveness of an organization is
highly depended on intangible assets.
• Intangible assets such as the owner,
employees, customer, innovation and
knowledge management are
significant important factors.
Table 3.2: Evidence (Continued)

24
Author
(Year)
• Sample size
• Platform
• Industry
Key findings
Steenkamp
& Kashyap
(2010)
Importance and
contribution of
intangible assets:
SME managers'
perceptions
• Survey
• 267 respondents
• Managers of SMEs in New
Zealand.
• Intangible assets are important and
value drivers are essential for small
and medium scale organizations.
• Majority of respondents believe that
intangible assets are very important
for their organizations’ success.
• Customer satisfaction, customer
loyalty, corporate reputation,
product reputation and employee
know-how have been identified as
important respectively.
• SME managers should be given the
awareness for understanding,
identifying and managing intangible
assets that most appropriate for the
organization to improve its
competitive advantage.
Song and
Kee (2012)
Intangible Factors
Affecting the
Success of Small
and Medium
Enterprises (SMEs)
• Systematic review • Intangible factors in SMEs do a
massive contribution on
organizational success and the
management of an organization
should have systematic method to
evaluate and manage tangible and
intangible factors with same
weightage.
• Intangible factors like, leadership
style, image of the organization,
product reputation, organizational
innovations, customer satisfaction
can be identified as key intangible
factors.

25
Author
(Year)
• Sample size
• Platform
• Industry
Key findings
Maria &
Anna (2015)
Intangible Assets
Management and
Evaluation:
Evidence from
SMEs
• Multiple case study
• 15 organizations
• Purposeful sampling.
• Majority of Engineering managers in
manufacturing organizations don’t
have a proper understanding of
intangible assets what they are
dealing with.
• Engineering managers should have
an understanding about tools that
can be used to get the knowledge
about intangible assets in the firm.
• Having good understanding of
intangible asset management tools of
Engineering managers in SMEs will
help to address organization
decisions correctly and develop
company policies for technological
innovation strategy.
• Properly using of intangible assets
management tools helps to identify
factors in innovative capital such as
patents, technical knowledge,
innovative competencies, design and
engineering capabilities and systems.
Sitharam &
Hoque
(2016).
Factors affecting
the performance of
small and medium
enterprises in
South Africa
• Survey
• 74 respondents.
• SME owners and managers.
• Development of technical
advancement improves business
performance of SMEs.
• Technological capabilities,
managerial competencies, employee
know-how and access to finance
have been identified as major factors
affecting SME performance.

26
Author
(Year)
• Sample size
• Platform
• Industry
Key findings
Watson
(2010)
Small and medium
size
enterprises and the
knowledge
economy:
Assessing the
relevance of
intangible
asset valuation,
reporting
and management
initiatives
• Multiple case study
• 85 organizations
• Purposeful sampling.
• Current financial reporting
framework doesn’t normally include
intangibles unless they have been
purchased such as goodwill through
accruing business and purchased
brands.
• Record keeping of intangible assets
as same as do for tangible assets is
neglected by most organizations due
to lack awareness of decision makers
of organizations.
• Organizations that expect investors
need to implement intangible asset
management systems in future for
being success since most investors
focused on those values before
investing.
Philip (2010) Factors affecting
business success of
small and medium
scale organizations.
• Survey
• 92respondents.
• SME employees.
• Six factors have been identified that
can improve business success of
SMEs such as characteristic of SMEs,
management and know-how,
products and services, the way of
doing business and cooperation,
resource and finance and external
environment.
• Out of above stated six factors, it has
been emphasized that three factors
most important, namely product and
services, external environment, and
management know-how.

27
3.3 Methodology and method of data analysis
According to (Kelemen and Rumens 2008; Alvesson and Sköldberg 2009), difference
between qualitative research and quantitative research can be identifies as qualitative
research uses non-numeric data and quantitative research uses numeric data for stating
research results. The characteristic of positivism philosophy in this systematic review,
author has been obliged to use some numeric data to reveal correlation of coefficient in a
quantitative manner, but entire review primarily based on qualitative explanation by
utilizing thematic synthesizing. By taking into account above clarification on the nature of
research, methodological choice of this research is mix method but quantitative
explanations of different studies are not recalculated or tested by the author.
As stated above, since this systematic review exhibits philosophical nature, the author
pursues cause and effect relationship between organizational intangible assets and financial
performance of SMEs and focus to develop a framework that display law like generalisation
by using deductive approach of data collection from 12 journal articles. Well accepted
theory on organizational intangible assets and financial performance of SMEs are employed
to carry out the evaluation of hypothetical relationships and entire research was
constructed on secondary data while evaluating by using systematic review.
3.3 Thematic synthesizing
Thematic synthesising is a method of rationalization of data for qualitative analysis
(Alvesson and Sköldberg 2009). According to the direction given by above literature, the
author employed codification and organized qualitative data as per the themes recognized
in the rationalization to realize solutions for third research objective. As per the results of
the literature review and the methodology that has been described in chapter 3.0, the
author advances to the discussion chapter. In the discussion chapter, the author discusses
the significance of findings by using evidence and available literature and will develop a
framework which exhibits law like generalization.

28
4.0 Discussion
4.1 Identifying intangible assets
As revealed through the literature review and the evidence table, there are several
terminologies for referring intangible assets such as intangibles, intellectual capital,
intangible capital, intellectual assets, intangible resources, knowledge resources (Fincham
and Roslender 2003; Lev 2001a; Tomer 2008; Bismuth and Tojo, 2008; Robertson and
Lanfranconi 2001; Bontis et al 1999). But when using the terminology intellectual capital, it
has primary sub categories such as human capital, internal capital and external capital as
well as secondary sub categories for similar type of intangible assets such as human capital,
innovation capital, process capital and relational capital. As per (New Zealand Institute of
Chartered Accountants n.d), the intangible assets are substances that can be identifiable as
a non-monetary asset but physically not available. But according to (Watson 2010), he has
emphasized that when accruing purchasable intangible assets from third parties, those
assets are mentioned in financial statements with their monetary values. According to
available different literature, there are inclusions and exclusions of intangible assets.
As per the studies done by (Natasja and Kashyap 2010), when considering intangible assets
as a whole without categorizing as per intellectual terminologies, he has identified
intangible assets namely, Employee innovativeness, Employee know-how, Employee work
experience, Employee education/qualifications, Employee job satisfaction, Employee
loyalty, Training of employees, Customer satisfaction, Customer loyalty, Databases,
Intellectual property, Distribution agreements, Management systems, Technological
processes, Brands, Corporate reputation, Product reputation, Corporate culture, Supplier
know-how, Distributor know-how, Relationships with suppliers, Relationship with investors
and Relationship with other stakeholders. As stated previously when categorizing intangible
assets under intellectual capital primary sub categories, it will give a clear overview of
intangibles in the organization as well its external environment.

29
The presumed frame-work for identifying and categorizing intangible assets by using
intellectual capital subcategorizing method.
Figure 4.1: Intangible assets classification
As per above literature and evidences found through the literature review have been
employed to construct above framework generally identifying intangible assets in an
organization without considering the size of the organization. So above framework is
subjected to change or modify when referring evidence in oncoming sections.
4.2 Evaluating intangible assets.
After synthesizing intangible assets identification, it is essential to discuss how to evaluate
intangible assets in an organization (Cañibano et al 1999). As stated by (Barney 1991), all the
assets in an organization are not equally valuable for the organization despite that it is
whether intangible or tangible. The assets that help to improve competitive advantage are
the resources that have the nature of diversified and imperfectly transferable (Lippman and
Rumelt 1982). As per (Itami and Roehl 1987), intangible assets have the nature of
diversification and imperfectly transferable features.
Intangible assets/Intellectual capital
Human Capital Internal Capital External Capital
• Employee
innovativeness
• Employee know how
• Employee work
experience
• Employee education
qualification
• Employee job
satisfaction
• Employee loyalty
• Training of employees
• Databases
• Intellectual property
• Management systems
• Technological
processes
• Corporate culture.
• Customer satisfaction
• Customer loyalty
• Brands
• Corporate reputation
• Product reputation
• Supplier know how
• Distributor know how
• Relationship with
suppliers
investors

30
As per (López and Nevado 2008), there are two tasks to be done when evaluating intangible
assets, first task is identification and classification and the second task is finding indicators
for measuring. The first task for evaluating intangible assets have been already done in
above 4.1 and the author has constructed an estimated framework as well. For the second
task, the valuation methodology to be practiced as recommended by (Marr and Gray 2002).
The valuation methodology has these five steps,
Table 4.2 Intangible asset valuation methodology
Step of intangible asset
valuation
Evidence and description
Strategy formulation it requires to list out available resources with connection
among intangibles, other resources and the performance (Grant
1991).
Strategy assessment
and execution
intangible assets are elements of inputs that an organization
should use to create a business strategy but after implementing
the strategy successfully, intangible assets become outputs as
well (Neely et al 1996; Bassi and Van Buren 1999)
Defining compensation
systems
Establishing an intensive scheme that focuses on improving
organizational values will strongly work on increasing and
developing intangible assets in the future (Bushman et al 1995)
Strategic development diversification and expansion, to fully utilization of
organizational resources, most organizations try to diversify,
merge and joint venture opportunities (Teece, 1980), investing
on intangibles like R & D and advertising will improve the
diversification of an organization (Morck and Yeung 2003)
Communicating the
value of the company’s
resources to
stakeholders
having lack of information of organizational intangible assets
causes organizations to under value the company, increasing
capital expenditure, etc (Leadbeater 2000; Gu & Lev 2001)

31
4.3 Identifying intangible assets in SMEs
As per the available literature, there is no any single definition to identify or classify small
and medium enterprises and factors like using number of employees, sales volumes,
industrial classifications (New Zealand Ministry of Economic Development 2009). But most
OECD countries and some other countries commonly use to define small and medium
enterprises by number of employees in the firm (OECD 2004).
According to the research done by (Natasja and Kashyap 2010), he has found that below
ranking for intangible assets by considering the importance to the firm.
Table 4.3: Intangible asset ranking for SMEs by importance
Rank Intangible asset Rating (least value is more important)
#1 Customer satisfaction 1.37
#2 Customer loyalty 1.47
#3 Product reputation 1.72
#4 Corporate reputation 1.73
#5 Employee know-how 1.90
#6 Employee loyalty 2.00
#7 Relationships with suppliers 2.03
#8 Employee job satisfaction 2.07
#9 Management systems 2.10
#10 Training of employees 2.17
#11 Brands 2.23
#12/13 Employee work experience 2.33
#12/13 Employee innovativeness 2.33
#14 Supplier know-how 2.37
#15 Intellectual property 2.47
#16 Relationship with other stakeholders 2.56
#17 Corporate culture 2.64
#18 Distributor know-how 2.66
#19/20 Technological processes 2.67
#19/20 Databases 2.67
#21 Relationship with investors 2.73

32
#22/23 Employee education/qualifications 3.00
#22/23 Other components 3.00
#24 Distribution agreements 3.1
4.4 Identifying financial performance of SMEs and factors affecting it
As per (Bubou 2014), small and medium scale organizations are the main contributor of
global economy. Financial performance is defined as utilizing organizational assets are
utilized optimally to increase the income of the business (Baxter 2007).
According to the research done by (Matsoso & Benedict 2016), this sector has a lack of
awareness on what are key finance measures to be made and lack of understanding on
what are the key financial measurements appropriate for their business.
As per (Bhagwat and Sharma 2007), financial factors like, ROI, ROA and cash flow are highly
depended on intangible assets such as customer satisfaction and internal efficiency control
methods. According to the research done by (Philip 2010), he has concluded that there are
six variables that impact on financial performance of SMEs such as management strategy,
business know-how, products and services, the way of doing business and cooperation,
resource and finance and external environment. As per (Song and Kee 2012), they have
concluded below findings.
Figure 4.4a: Financial and non-financial factor in SMEs and tangible and intangible assets.

33
The results exhibit by (Song and Kee 2012), shows a significant deviation since he has
directly categorised intangible factors like customer satisfaction and customer retention as
non-financial factors by neglecting its correlation with return of investment, return of assets
and cash flow that have been concluded by (Bhagwat and Sharma 2007) for financial
performance. So the author suggests that concluding impact to the financial performance by
intangibles, organizations should practice proper intangible assets evaluation method.
According to the research done by (Philip 2010), he has concluded below results for
emphasizing factors that impact on financial performance.
Figure 4.4b: Results of regression analysis on financial performance factors of SMEs
When considering factors identified such as business know-how, products and services, the
way of doing business and external environment mostly represent intangible factors. So the
author will present in-depth analysis on determining intangible factors through above
identified factors in an oncoming section.

34
4.5 Impact of intangible assets on financial performance SMEs and evaluating most effective
intangible assets.
As per (Song and Kee 2012), he has concluded six factors that impact on financial
performance. When referring his results, there are clearly identifiable intangible assets as
well as factors that should be further analysed with other researches and available
literature. So the author has prepared below table by collaborating findings of (Philip 2010)
and (Natasja 2010).
Table 4.5a
Factors Identified that have a
relationship with finance
performance in SMEs
Intangible assets that have been identified for
SMEs (Correlation with financial performance)
business know-how • Employee know-how
• Employee work experience
• Employee innovativeness
product and services • Brands
• Technological processes
the way of doing business and
cooperation
• Corporate culture
External environment • Relationship with other stakeholders
• Relationship with investors
• Relationships with suppliers
• Supplier know-how
• Distributor know-how
As per the above table emphasized that all six factors that has been concluded by (Philip
2010) have intangible factors that impact on financial performance. On the other hand, this

35
result can be evaluated by further with the ranking concluded by (Natasja 2010) for
determining most important intangible assets. So the table 4.3 & 4.5a is used to determine
most effective intangible assets in SMEs that have an impact on financial performance by
using determinant factors given in referencing researches.
Table 4.5b
Factors relationship with
finance performance in SMEs
Intangible assets that have an
impact on financial
performance in SMEs
Most effective intangible
assets that have a financial
performance impact in SMEs
business know-how • Employee know-how
• Employee work
experience
• Employee
innovativeness
• Employee know-how
product and services • Brands
• Technological
processes
• Brands
the way of doing business and
cooperation
• Corporate culture
External environment • Relationship with
other stakeholders
investors
• Relationships with
suppliers
• Supplier know-how
• Distributor know-how
suppliers

36
According to the evidence recognized through available literature and the evidence taken
from twelve research articles, below framework has been developed by the author. Below
figure 4.5 shows prosed structure throughout identifying intangible assets, classification of
intangible assets and evaluating intangible assets for achieving financial performance of
SMEs. When evaluating 12 articles, any research article has not been able to give a
comprehensive picture of intangible assets identification and classification of them to
evaluate intangible assets for identifying most suitable intangible assets towards financial
performance of SMEs.

37
Figure 4.5: Framework for identifying, classification and evaluating intangible assets for
financial performance.
Classification of Intangible assets
Human Capital Internal Capital External Capital
• Employee
innovativeness
• Employee know how
• Employee work
experience
• Employee education
qualification
• Employee job
satisfaction
• Training of employees
• Databases
• Intellectual property
• Technological
processes
• Corporate culture.
• Brands
• Supplier know how
• Distributor know how
suppliers
investors
Intangible assets/Intellectual capital of SMEs
Evaluating Intangible assets
Step 1 - Strategy formulation
Step 3 - Defining compensation systems
Step 2 - Strategy assessment and execution
Step 4 - Strategic development
Step 5 - Communicating the value of the company’s
resources to stakeholders
Financial
Measures
Financial Performance

38
5.0 Conclusion and recommendations
This systematic review was aimed to critically evaluate current reliable studies on intangible
assets and its impact of financial performance of SMEs and to develop a most suitable
framework to identify, evaluate intangible assets most appropriate to SMEs and improve
financial performance in a sustainable manner. For reaching the aim of this research, four
objectives were set. First objective for identifying and evaluating intangible assets. Second
objective for evaluate factors affecting financial performance of SMEs. Third objective for
critically investigating the level of impact of intangible assets from factors identified for
financial performance. Fourth and final objective for evaluating most effective intangible
assets that could enhance financial performance of SMEs.
For identifying and evaluating intangible assets, the author referred, all twelve articles but
relevant studies were found from seven articles. Rest of five articles were selected by the
author to get data on financial performance of SMEs hence in those articles, directly
intangible assets were not referred. When reoffering intangible assets, it was concluded
that there were several terminologies such as intangibles, intellectual capital, intangible
capital, intellectual assets, intangible resources, knowledge resources like wise. As the
author has done in this paper, the evidence shows that for evaluating intangible assets, it is
required to identify and classify as the first task then there should be valuation method. The
classification of intangibles can be done with terminology of intellectual capital such as
human capital, internal capital and external capital. Proposed valuation method has five
steps and it has also been included to the framework develop by the author.
To evaluate factors affecting financial performance of SMEs, author referred only five
articles that have been selected for referring financial performance of SMEs. As argued in
several articles, SMEs are the main contributor for global economy, it is strongly suggesting
to governments to do trainings and awareness on how to select most suitable financial
measures for these organization sector. According to two articles, it was evident that SMEs
don’t have good skills to identify what are most suitable financial measures or factors relate
to their businesses.

39
As above objective one and two have been set for approaching to main research objective
there were no any correlation related findings other than stating with evidence to identify
and evaluate intangible assets and financial performance factors of SMEs.
When it comes to the third objective, the systematic review concluded a very positive
correlation between intangible assets and financial performance of SMEs by synthesizing all
the articles except (Lappalainen & Niskanen (2012) and (Matsoso & Benedict 2016). Some
articles have discussed about a correlation between intangible assets and overall business
performance with a light discussion on direct financial impacts and (Alonso, Merino &
Ayastuy 2015) has discussed a different ideology to valuate intangible assets to give a
financial value. According to the evidence found through referred two articles, there have
been identified six factors that impact on financial performance of SMEs and four out of six
factor are most impactful to the finance performance such as business know-how, product
and services, the way of doing business and cooperation and External environment. These
four factors mostly contain intangible assets and found sixteen intangible assets relate to
them. So the correlation between intangible assets and financial performance has been
concluded well with that article evidence.
objective for evaluating most effective intangible assets that could enhance financial
performance of SMEs, author had to examine all twelve articles and to synthesize relevant
articles for constructing the results. By synthesising two articles, it has found that there are
nine intangible assets out of sixteen intangibles are most important for financial
performance of SMEs. The identified intangible assets are employee know-how, employee
loyalty, management systems, product reputation, brands, customer satisfaction, customer
loyalty and relationship with suppliers.
Ultimately, the framework proposed by the author by including identifying, classification
and evaluating intangible assets to get financial performance benefits. The evaluation of
intangible assets can be done by benchmarking competitive top level companies usually.
Due to lack awareness on intangible assets, SMEs may neglect intangible asset
management, since the majority of the profit has a major impact of intangible assets, it is
recommended to offer training to managers and top management regarding the value of
intangible assets.

40
The research methodology of this study is a systematic review, it may have its own
limitations so the author proposed framework required to be validated through a survey or
a case study with primary data by using mix methodology since some numeric values are
involved with the nature of this research topic.

41
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