Internationalization, Company Value Creation, and European Funds

Introduction

Increasing markets’ globalization has led to increased technological innovation, competitiveness, more demanding consumers, and also transformation in the organizations’ ownership structure, originating an increase in mergers and acquisitions. Facing an increasingly challenging scenario, companies become more susceptible to risk and uncertainty. To manage the many challenges, management needs to outline and implement successful strategies. Thus, strategy planning, as well as financial performance assessment, are determining factors for management.

Presently, value creation has been revealing significant relevance in the business environment since it makes it possible to ascertain the companies’ ability to pay all its investors, including equity owners and financial institutions, unlike traditional measures based on profit.

This increase in interest regarding value creation derives from a change of focus from mere profit and profitability analysis. The current understanding is that profits can only lead to a company’s wealth and long-term sustainability if they are enough to repay the cost with total invested capital, whether from equity owners or financial partners thus creating value (Neves, 2011). So, authors like Assaf Neto (2014) and Bhasin consider value creation to be one of the main objectives of any company.

In the last decades, Portuguese companies have benefited from EU funds with the purpose of enhancing competitiveness and capability to create value considering the increasingly international context. However, as relevant as the subject may be, empirical studies regarding the impact of receiving such funds it is not significant, quite the contrary. Presently, with the ongoing pandemic situation and the expected massive negative impact on organizations, employment, and the economy, this is issue got even greater magnitude.

The purpose of this research study is to determine the impact of European funds that finance investments directed towards internationalization strategy, on financial value creation, internationalization capacity, and employment level, on Portuguese companies.

Thus, for the purpose of the study, a sample of Portuguese companies that benefited from the European incentives under the Qualification and Internationalization Incentive System in the fiscal year 2015 will be analyzed. This choice stems from the fact that this Program is directed to financing investments in strategic areas to business success, such as internationalization and innovation. The aim is to verify the impact on internationalization level, as well as on value creation capacity and job creation.

With this in mind, data consisting of economic and financial values of the fiscal years 2015, 2016, 2017, 2018 and 2019, will be analyzed using several statistic techniques, such as hypothesis test for differences between means.

The remainder of this chapter is structured into three sections: the theoretical framework, regarding the importance of internationalization, highlighting its relationship with innovation and financial performance, the assessment of financial performance based on value creation and the capital cost concept; the empirical study, featuring a more detailed purpose of the study and research methodology and the analysis and discussion of research results; and finally, the conclusion.