Does Knowledge Management Matter? The Empirical Evidence from Market-Based Valuation

Abstract

Information technology is inseparable from contemporary knowledge management (KM). Although anecdotal evidence and individual case studies suggest that effective knowledge management initiatives contribute to superior firm performance, other kinds of empirical investigations are scarce, and more to the point, most of them are based on perceptions of survey participants embedded in the firms being studied. Moreover, studies analyzing the question of whether superior KM performance can predict superior market-based valuation appear to be virtually nonexistent. Findings of such studies would be of value to those who champion and direct a firm’s KM efforts, and to the firm’s strategists, planners, and operational managers. Here, we empirically examine the relationship between KM performance and firm valuation; the former is assessed by international panels of independent KM experts and the latter is evaluated in terms of market-based measures. Based on data spanning eight years, the results show that superior KM performance has a statistically significant positive association with firm valuation in terms of Tobin’s q, price-to-book ratio, and price-to-sales ratio. This study contributes to the management literature by using independent expert judges and archival data to substantiate the notion that KM competencies are an important ingredient in a firm’s performance as indicated by market-based valuation.