Boost Brothers is continually developing its international and cutting-edge expertise. In addition to practical experience, we also strive to be academically active and to produce new and interesting research data for the development of the construction sector.
A good example of this is a recent Rakennuslehti report on the Master’s thesis, completed in spring 2021, “Market Value of Construction Innovations – Empirical Evidence from the EU,” where the effects of innovations on the market value of companies in the construction sector were studied by Samu Heikkilä, M.Sc. (Eng.), M.Sc. (Econ.), who works as a Construction Specialist at Boost.
In this article, we will briefly discuss the progress of the research and the results that bring significant added value to the awareness of decision-makers in the construction sector in support of innovation growth.
Awakening the construction sector to innovation
Innovation efforts in the construction sector have traditionally been very modest, especially compared to other similar industries. For example, according to several studies, the ratio of R&D investment to turnover in the construction sector is about five times lower than in compared sectors.
The low level of willingness to innovate is largely explained by the characteristics of the sector: small margins, fragmented supply chains and one-off projects, among other things, are a difficult environment for innovation, as the risks associated with new products and practices are often perceived to outweigh the potential benefits. It is therefore clear that operators in the sector need new incentives to stimulate innovation.
“The easiest way to encourage business innovation is to show that it is economically viable”
The aim of Heikkilä’s research was to examine the average market value impact of innovations in the construction sector. The result is central to encouraging innovation, as up to half of the building management fees are generated by equity-based incentives linked to market value.
“If it can be shown that the market values innovations in the construction sector despite the challenges and risks of the operating environment, there will be an incentive for owners and managers to increase their investment in innovation. The easiest way to encourage business innovation is to show that it is economically viable,” says Heikkilä.
Uniquely comprehensive research data
The average market value impact of innovations in the construction sector was estimated using press releases from listed companies as indicators of innovation activity.
“According to previous academic literature, innovation press releases are a useful indicator of the economic impact of innovation activity, as their cause-and-effect relationship with market value can be clearly defined,” says Heikkilä.
The main listed building construction companies in the Member States of the European Union were selected for the study, in which nearly a thousand press releases published by them in the period of 2010-2019 were examined. The study was conducted using a quantitative transaction survey methodology that considers the general trend and volatility of the stock exchange among other things. 58 press releases on innovation from 19 companies were selected for the final material.
“The material in question is exceptionally comprehensive and extensive. Similar studies between market value and innovation activity have been carried out in other industries, but to the best of my knowledge, the study is unique in the context of the construction industry,” states Heikkilä.
A stock exchange release on innovation leads to an average increase of 0.47 % in the market value of a construction company
The main finding of the study is that press releases on innovation lead to an average increase of 0.47% in a company’s market value. A single press release could even increase the company’s market value by several percent. The companies in the research material are worth billions in terms of market value, and even a small percentage change can lead to growth of up to millions of euros in their market value.
“The study provides business decision-makers with very important information on how capital markets value innovation in the construction sector. The results suggest that companies in the sector can benefit significantly from investment in innovation through positive market value effects. I would say that the markets value companies that are constantly striving to develop their competitive advantage,” Heikkilä summarizes.
The main finding is in line with previous research findings in the field, according to which a stock exchange release on innovation for sustainable development will increase the market value of the construction company by the same amount (0.8 %) as a positive profit warning (Kajander et al., 2012).
Heikkilä’s study in its entirety is available in English at https://trepo.tuni.fi/handle/10024/130630.
Read more about the activities of the Boost employees as an engine of innovation in the industry here https://boostbrothers.fi/en/breaking-news-for-real-estate-and-construction-sector-renewal
Further information on the results of the study is provided by Samu Heikkilä, Construction Specialist, firstname.lastname@example.org, +358 44 581 7979.