Financing Intangible Capital

67 Pages Posted: 19 Aug 2015 Last revised: 15 Jun 2022

See all articles by Qi Sun

Qi Sun

Luohan Academy

Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance

Date Written: October 2, 2016


Firms finance intangible investment through employee compensation contracts. In a dynamic model in which intangible capital is embodied in a firm's employees, we analyze the firm's optimal decisions of intangible investment, employee compensation contracts, and financial leverage. Employee financing is achieved by delaying wage payments in the form of future claims. We document that intangible capital investment is highly correlated with employee financing, but not with debt issuance or regular equity refinancing. In the quantitative analysis, we show that this new channel of employee financing can explain the cross-industry differences in leverage and financing patterns.

Keywords: Intangible Capital, Limited Commitment, Equity Financing, Debt Capacity

JEL Classification: G32, G35, E22

Suggested Citation

Sun, Qi and Xiaolan, Mindy Z., Financing Intangible Capital (October 2, 2016). Journal of Financial Economics (JFE), Vol. 133, No. 3, 2019, Available at SSRN: or

Qi Sun

Luohan Academy ( email )

No. 556, Xixi Road, Z Space
Xihu District
Hangzhou, Zhejiang 310013

Mindy Z. Xiaolan (Contact Author)

University of Texas, Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States


Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics