Knowledge Asset Pledgeability and Financing Innovation

62 Pages Posted: 7 Sep 2012 Last revised: 17 Oct 2019

See all articles by Zhong Zhuang

Zhong Zhuang

University of Wisconsin - Madison

Date Written: October 1, 2012


The high external financing costs for innovating firms may have considerably suppressed the U.S. economy by discouraging R&D. Estimating a dynamic model of investment and capital structure with the simulated method of moments, I quantify the potential economic benefits that would be achieved by enhancing knowledge asset pledgeability to provide R&D-intensive firms with less costly debt financing. My results indicate that a small increase in the pledgeability of knowledge assets already suffices to significantly alleviate firms' financing constraints in R&D, potentially offering substantial economic benefits to innovating firms and a profound boost to technological innovation. Suggesting an essential connection between finance, innovation, and the economy, my findings have timely implications for financial, economic, and accounting issues regarding the recognition and treatment of firm knowledge assets.

Keywords: R&D, knowledge assets, pledgeability, structural estimation, financing constraints

JEL Classification: C33, D92, E22, G31, G32, O32, O40

Suggested Citation

Zhuang, Zhong, Knowledge Asset Pledgeability and Financing Innovation (October 1, 2012). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: or

Zhong Zhuang (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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