Reinvestment as an Aspect of New Business Model in European Knowledge-Intensive Firms

This paper aims to discover the main financial characteristics of business models (BMs) of EU-listed firms operating in knowledge-intensive businesses, using Lazonick (2006) underground and factor analysis in two different years, 2009 and 2016, capturing peculiarities of BM and looking at the ‘finance’ aspect. We show the existence of reinvestment by firms rather than using traditional financial leverage to pursue their BM. Our primary finding is in line with the existence of homogenous traits in the BM in Europe. We also discovered that reinvestment is correlated with corporate profitability and it tends to confound with profitability in and of itself. Our results offer implications for economic and policy decisions. Potential shareholders could look at reinvestment rates to predict profitability. Additionally, if reinvestment is crucial for profitability and identifies the BM of the firms, policy measures aimed at reducing fiscal pressure on reinvestment could turn into a pro-growth policy.