Intellectual Capital and Financing Decisions: Evidence from the U.S. Patent Data
33 Pages Posted: 12 Mar 2009
Date Written: March 12, 2009
Abstract
This paper develops a real options model of capital structure to understand two distinct roles played by intellectual capital in corporate financing decisions. First, intellectual capital limits a firm's debt capacity because of its low liquidation value. Second, intellectual capital enhances a firm's debt capacity through its positive impact on the earnings dynamics. We show that the former is dominated by the latter within our model so that intellectual capital positively affects leverage as measured by market leverage, book leverage, and interest coverage ratios. Using three patent-based variables as proxies for intellectual capital, we find robust evidence that a positive relationship between a firm's intellectual capital and its leverage ratio prevails. The effect of intellectual capital on leverage is also economically significant. Specifically, a one-standard-deviation-increase in the level of a firm's intellectual capital increase its market leverage ratio by 11.7-27.3% from the sample mean level (22.2%). We further find that the positive relationship between intellectual capital and leverage is much stronger for high-tech firms than for non-high tech firms. Finally, we document evidence that an increase in intellectual capital leads to an increase in firm leverage over time.
Keywords: capital structure, intellectual capital, patent-based metrics, bankruptcy
JEL Classification: G32, G33
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
What Do We Know About Capital Structure? Some Evidence from International Data
By Raghuram G. Rajan and Luigi Zingales
-
The Theory and Practice of Corporate Finance: Evidence from the Field
By John R. Graham and Campbell R. Harvey
-
The Theory and Practice of Corporate Finance: The Data
By John R. Graham and Campbell R. Harvey
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Testing Tradeoff and Pecking Order Predictions About Dividends and Debt
By Eugene F. Fama and Kenneth R. French
-
Testing Static Trade-Off Against Pecking Order Models of Capital Structure
-
Optimal Capital Structure Under Corporate and Personal Taxation
By Harry Deangelo and Ronald W. Masulis